Transition Services in Asset Purchase Deals

In an asset purchase transaction, “transition services” refer to the idea that, as part of the deal, the seller agrees, post-sale-consummation, to help the buyer with some aspect of the transaction. This might entail helping the buyer integrate some newly acquired asset into the buyer’s business operations or training the buyer’s staff/employees on use, etc. Such transition services are set forth in an agreement often called a Transition Service Agreement (“TSA”). A TSA sets out several key features, including:

Services to be provided
Length of time for the services
Payment
Potential extensions
Personnel who have agreed to render the services
(Often) exclusions of personnel
Confidentiality and non-compete provisions
And more

A very basic TSA provision might read like this:

“Transition Services. Seller agrees to provide transition services to Buyers related to software integration as described on Exhibits A-1 through A-8 hereto (the “Transition Services”). During the Transition Period, as defined herein, and subject to the terms and conditions of this Agreement, Seller shall cause [specifically defined PERSONNEL, COMPANY, THIRD-PARTY CONSULTANT, ETC.], who have historically engaged in software-related services for Seller, to provide to Buyers the Transition Services in the manner, at the time, and for the compensation stated herein; provided that to the extent that Buyers identify any additional services necessary for Buyers to conduct their businesses during the Transition Period, the Parties shall negotiate in good faith the provision of such additional services. In no event shall any of the Services include any services of [PERSONS, COMPANY].”

As this sample provision shows, there are many issues to consider with a TSA. First, from whom are the services needed? The services might be needed from a person or a group of the Seller’s staff, from an affiliate company of the Seller, or from some third party. Obviously, a TSA must be tailored to fit the circumstances. Another obvious point is that the transitional services providers must independently agree to provide the services. So, a TSA is going to be a three-way contract (at least).

The length of a TSA is often a function of the extent and complexity of the transition services that are desired. Where the term is brief, and the expected services are minimal, a TSA can be short and to the point. This is also true where the expected services are “to-be-determined-an-as-needed.” That is, some TSAs are contracts that allow the buyer to call for help if needed. Where the services are more complex, the TSAs would likely be lengthy and the above same provision would be significantly expanded.

Whatever the length, there are generally a number of other key provisions included. One set of provisions will relate to the issue of control over the assets and control over business policies. For example, it is common to have provisions making it clear that the service providers will have no control over or management of the assets in question, will have no management or policy decision-making authority, and will have no right to direct or control buyer’s employees, staff, contractors, etc.

Likewise, provisions related to real estate are common, providing that access given to a transition service provider to a facility is not to be deemed as a conveyance or the right to occupy the space.

Equally as important, buyers do not want the transition service personnel to be deemed employees of the buyer. So, provisions are drafted that provide that the buyer has no control over or responsibility for the employees, contractors, or staffing of the transition service providers.

Contact the Business Attorneys st Revision Legal For more information, contact the experienced Business Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.

Key Legal Risks in Transition Service Agreements

TSAs are deceptively complex documents. Even a short, narrowly scoped TSA can expose both buyer and seller to significant legal liability if not carefully drafted. One of the most common and consequential disputes involves the scope of services. Sellers often interpret their obligations narrowly, while buyers expect comprehensive support. Without precise, itemized service descriptions — ideally attached as exhibits — disputes are almost guaranteed. Courts interpreting ambiguous TSA language will generally look to the parties’ course of conduct and communications, which may not favor either side cleanly.

Another recurring issue is intellectual property. When a seller’s personnel assist a buyer post-closing, they may inadvertently create new work product, modify existing software, or generate data that could be characterized as jointly owned. Your TSA should include an express IP assignment clause confirming that all work product created by the seller’s personnel during the transition period belongs exclusively to the buyer. Without this, you risk a dispute over who owns critical operational software or technical documentation produced during onboarding.

Compensation and Payment Structures in TSAs

How transition services are compensated is one of the most heavily negotiated points in a TSA. There are three common approaches:

Fixed fee — a set amount per month or per deliverable, regardless of actual time spent; provides predictability but can disadvantage the buyer if the scope expands
Cost-plus — seller is reimbursed for documented costs (salaries, overhead, third-party expenses) plus a negotiated margin; common in longer, more complex transitions
Time-and-materials — the seller bills for actual hours at agreed hourly rates; provides flexibility but requires strong recordkeeping and audit rights

Regardless of the structure chosen, the TSA should include a detailed invoicing and payment schedule, an obligation to provide supporting documentation, and audit rights allowing the buyer to verify charges. Where a cost-plus or time-and-materials model is used, the TSA should also cap total compensation to prevent runaway costs.

Employment and Labor Law Considerations

The employment relationship issues in a TSA are significant and often underappreciated. When seller’s employees provide transition services to a buyer, two primary legal risks emerge. First, as noted in the basic TSA provision above, there is the risk that a court — or the IRS, or a state labor agency — will re-characterize the seller’s employees as employees of the buyer for purposes of benefits, workers’ compensation, tax withholding, or wage-and-hour compliance. This is particularly dangerous where the buyer exercises day-to-day direction over how the transition personnel perform their work.

Second, if the transition involves the seller’s employees working in a state where the buyer operates, those employees may become subject to the buyer’s state’s labor laws — including minimum wage requirements, meal and rest break rules, and non-compete restrictions. The TSA should expressly state which party retains employer status, which party is responsible for employment taxes and benefits, and which party bears workers’ compensation liability during the transition period.

Confidentiality and Non-Solicitation Provisions

A well-drafted TSA will include confidentiality provisions that go in both directions. The buyer will share confidential business information with the transition service providers in order for those providers to perform the services. The seller’s personnel will also have access to the buyer’s systems, employees, and trade secrets. At the same time, the buyer will learn a great deal about the seller’s operations, systems, and methods — some of which may relate to assets or businesses the seller retained.

Mutual non-disclosure provisions, tied to the Defend Trade Secrets Act (18 U.S.C. § 1836) at the federal level and applicable state trade secret statutes, are essential. The TSA should also include a mutual non-solicitation of employees clause for a defined period after the transition concludes. Without this, either party could hire away the other’s most valuable people as a direct result of the relationship the TSA created.

Termination Rights and Exit Planning

Every TSA should include clear termination provisions covering both for-cause and convenience terminations. A buyer may discover that the services being provided are inadequate, the seller’s personnel are uncooperative, or the buyer no longer needs the services. A seller may find that providing the services is more burdensome than anticipated or that continued involvement creates liability exposure. Clear exit ramps — with reasonable notice periods and defined wind-down obligations — protect both sides.

The TSA should also specify what happens to work-in-progress, shared systems access, and documentation upon termination. Buyer should require that, upon termination, seller will promptly return or destroy all buyer confidential information, transfer any buyer-owned work product, and cooperate in transitioning any ongoing workflows to the buyer’s own team or a replacement provider.

Contact the Business Attorneys at Revision Legal

TSAs are more than a post-closing afterthought — they are critical legal documents that can determine the success or failure of an asset purchase transaction. If you are buying or selling a business and anticipate any need for transition services, contact Revision Legal before the deal closes. We draft and negotiate TSAs routinely and understand how to protect your interests at every stage. Reach us through the form on this page or call (855) 473-8474.