Transitional Services Agreement

Transitional Services Agreement

Bridges closing to operational independence with balanced risk allocation between Service Provider (seller) and Service Recipient (buyer).

Prerequisites

1. Transaction agreement — full purchase/merger agreement text; note any TSA mandates, pricing caps, or term limits
2. Service inventory — systems and functions the acquired business relies on (IT, HR/payroll, finance, facilities, procurement)
3. Closing date — confirmed or estimated (TSA effective date = closing)
4. Transition timeline — buyer's self-sufficiency milestones per service category
5. Data map — personal data categories processed through shared systems (for DPA exhibit)

Quick Start

1. Review transaction agreement for mandated services and pricing constraints
2. Catalog all seller-provided services the acquired business depends on
3. Draft using the output structure below; attach exhibits A–E
4. Align governing law and dispute resolution with the transaction agreement
5. Verify third-party vendor consent requirements

Output Structure

1. Preamble & Recitals

• Full legal names; seller = "Service Provider," buyer = "Service Recipient"
• Reference transaction agreement by title, date, and parties
• Effective date = closing date
• Characterize TSA as temporary accommodation, not ongoing commercial relationship

2. Definitions

Import undefined capitalized terms from the transaction agreement.

3. Services

Organize by function: IT, HR/Payroll, Finance/Accounting, Facilities, Procurement/Supply Chain.

Scope formula: "Access to and support for [category] systems used by the acquired business as of closing, at substantially the same level as provided pre-closing."

Performance standard: Good faith; same manner/quality/resources as pre-closing 6-month period. Replacement personnel must have substantially similar qualifications.

Explicit exclusions:

• New capability development or system upgrades beyond routine maintenance
• Capacity expansion beyond historical levels
• Services to locations/functions outside the acquired business

Operational mechanics: Named contacts + escalation path per party; service request mechanism with response SLAs; access rights and security protocols.

4. Compensation

Pricing: Cost reimbursement (no markup) — standard for TSAs.

• Invoicing: Monthly, itemized by service category
• Payment: 30 days (undisputed); disputes via written notice within 15 days
• Taxes: Exclude sales/use/VAT/GST; Service Recipient bears transaction taxes (not Provider income tax)
• Extensions: 10–25% fee escalation to incentivize timely transition

5. Term & Termination

Post-termination: Provider cooperates in transition to replacements; Recipient pays fees through termination date; mutual return/destruction of Confidential Information with certification. Survival: confidentiality, indemnification, payment, liability limits, dispute resolution.

6. Representations & Disclaimers

• Provider reps: Authority, no conflict, enforceability, good-faith performance, legal compliance
• Provider disclaimer: NO implied warranties (merchantability, fitness, adequacy); no obligation to enhance beyond closing-date baseline; no liability for third-party system degradation outside Provider's control
• Recipient acknowledgment: Accepts services as-is subject to "same manner" standard; bears transition planning risk

7. Confidentiality & Data Protection

Confidentiality: Same care as own information (no less than reasonable); need-to-know only; TSA-purpose use only. Standard carve-outs: public info, prior possession, independent development, unrestricted third-party disclosure.

Data protection (if personal data involved):

• Recipient = controller; Provider = processor
• Provider: process per documented instructions; implement appropriate safeguards; assist with DSARs and breach response
• Breach notification: 24–48 hours; describe nature, scope, affected data, remediation
• Attach GDPR Art. 28 / CCPA-compliant DPA as Exhibit D [VERIFY jurisdictional thresholds]

8. Indemnification

Procedure: Prompt written notice (late notice excuses only if materially prejudicial); indemnifying party controls defense (no settlement imposing obligations without consent); cooperation required. TSA governs service-related claims; transaction agreement governs deal-related claims.

9. Limitation of Liability

• Cap: Total fees paid/payable in preceding 12 months (or full term if shorter)
• Excluded damages (mutual): Lost profits, revenue, opportunities, anticipated savings, business interruption, reputational harm, all consequential/indirect/punitive damages
• Carve-outs from cap: Third-party indemnification, confidentiality breach, fraud/willful misconduct/gross negligence, payment obligations
• Specific performance: Available without bond for confidentiality breach or critical service failure

10. Governing Law & Disputes

• Governing law: Same state as transaction agreement (typically Delaware/New York); exclude conflicts-of-law principles
• Escalation: Senior executives confer within 10–15 days; if unresolved after 15–30 more days → litigation
• Forum: Exclusive jurisdiction in governing-state courts; venue objection waived
• Jury waiver: If agreed; must be conspicuous
• Equitable relief: Preserved for confidentiality and critical service failures

11. General Provisions

• [ ] Assignment — consent required; affiliates/asset acquirors exempt
• [ ] Notices — written; personal delivery, confirmed email, overnight courier (next day), certified mail (3 days)
• [ ] Entire agreement — TSA controls service matters; transaction agreement controls deal matters; specify conflict hierarchy
• [ ] Amendment — written and signed only
• [ ] Severability, waiver (written only), independent contractor, counterparts/e-signatures
• [ ] Force majeure — excludes payment; 60–90 day continuation triggers termination right
• [ ] Publicity — mutual written consent; carve-out for legally required disclosure

Exhibits

Pitfalls & Checks

• "Same manner" = floor and ceiling — Provider neither degrades nor upgrades without agreement; document pre-closing baselines
• Transaction agreement alignment — check for mandated services, pricing caps, approval rights; TSA prevails for service matters
• Incentivize transition — escalating extension fees + Recipient convenience termination discourage dependency
• Liability cap reflects accommodative nature — tie to fees received, not deal value
• Data protection is mandatory — any personal data flow requires a compliant DPA regardless of deal size
• Third-party consents — flag vendor contracts requiring consent; Provider's obligation limited to commercially reasonable efforts
• Jurisdiction — US-focused; adapt data protection for cross-border services involving EU/UK data subjects