Best Buying, Selling or Merging a Business in India Lawyer

Buying or selling a business is one of the most significant decisions an owner makes. It may be a founder selling to a strategic buyer, a family business acquiring a competitor, two group companies merging, or a business splitting off a division. Each structure has different legal, tax and regulatory consequences, and each needs careful documentation to protect both sides from post-deal disputes over price, warranties and liabilities.

This page is for buyers, sellers, promoters and investors in private company and SME transactions. In short: choose the structure, share purchase, business transfer, asset purchase, merger or demerger, based on what is being bought, tax, liabilities and approvals; conduct due diligence and reflect the findings in the documents; negotiate the share purchase or business transfer agreement with clear price mechanics, warranties, indemnities and conditions; obtain the approvals needed, including the NCLT for schemes, the fast-track route for eligible companies, FEMA for foreign parties, and the Competition Commission if thresholds are met; and plan the closing and post-closing steps.

Most M&A disputes arise from price adjustments and warranty claims. Clear drafting at the start prevents most of them.

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Common deal structures

Choosing the structure

In a share purchase, the buyer steps into the shoes of the seller as owner of the company. The company keeps all its assets, contracts, licences and liabilities, known and unknown. This is simple where the company is clean, but the buyer inherits any hidden problems, so due diligence and warranties are essential. Licences and contracts usually continue, subject to change-of-control clauses.

In a business transfer or slump sale, the seller transfers its business as a going concern for a lump sum, without values being assigned to individual assets. The buyer can choose which liabilities to take on, though some, such as employee and tax liabilities, may follow the business by law. Contracts and licences need to be assigned or reissued, and stamp duty applies on the transfer of property. An asset purchase allows the buyer to pick specific assets, with even more control over liabilities. Tax treatment differs significantly between these structures, so tax advice is part of the decision.

How we handle acquisitions

Time and typical cost range

Our fees are agreed in writing at the start, stage by stage, and are not linked to the outcome.

Documents needed

Key clauses in a share purchase agreement

Mergers and demergers

A merger or demerger between companies is usually carried out through a scheme of arrangement under Sections 230 to 232 of the Companies Act, approved by the NCLT. The process includes board approval, valuation and a fairness opinion where required, an application to the NCLT for directions on meetings of shareholders and creditors, the meetings themselves, notices to regulators including the income tax department and the Registrar, a hearing, and the NCLT's sanction. The process typically takes six to twelve months.

For mergers between small companies, between a holding company and its wholly owned subsidiary, between startups, or between a startup and a small company, Section 233 provides a fast-track route approved by the Regional Director without going to the NCLT, if the shareholders and creditors approve by the required majorities. This route is quicker and cheaper, and the government has widened it in recent years. Check eligibility at the outset.

Warranties and indemnities

Warranties are statements by the seller about the company: that the accounts are accurate, that there is no undisclosed litigation, that the company owns its assets, that it complies with laws, and so on. If a warranty is untrue, the buyer can claim damages. The seller limits its exposure through a disclosure letter listing exceptions, and through limitations in the SPA: an overall cap, often a percentage of the price; a minimum threshold for claims; and a time limit, such as 18 or 24 months for general warranties and longer for tax and title.

Indemnities are promises to pay for specific losses, such as a pending tax demand or a known lawsuit, regardless of whether a warranty was breached. Buyers prefer indemnities for known issues found in due diligence. Warranty and indemnity insurance is available in some larger deals. Draft these clauses precisely, since most post-deal arbitrations are about them.

Laws that apply

How we work

We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:

• Dispute-aware drafting: warranties, adjustments and indemnities that are clear.
• Structure advice: with tax advisers, for the best route.
• Approvals handled: NCLT, fast-track, FEMA and CCI where needed.
• Practical closings: checklists and coordinated filings.
• Written fee terms: agreed stage by stage, never linked to the outcome.

Mistakes in acquisitions

Price mechanisms

Two common approaches to price are the locked box and completion accounts. In a locked box deal, the price is fixed by reference to a balance sheet at a date before signing, and the seller promises that no value will "leak" from the company to it between that date and closing, other than permitted leakage. This gives price certainty, but the buyer bears the risk of the business's performance from the locked box date. In a completion accounts deal, the price is adjusted after closing based on the actual net debt and working capital at closing, which is fairer but often leads to disputes over the accounts.

Whichever approach is used, define the terms precisely: what counts as debt, what counts as working capital, the accounting policies to be applied, and the process for resolving disagreements, usually by an independent accountant acting as expert. Many post-closing disputes are about these definitions.

Conditions precedent and the gap period

Many deals are signed and then closed weeks or months later, after conditions are fulfilled: regulatory approvals, third-party consents, remedying diligence issues, and obtaining releases from lenders. During this gap period, the seller usually agrees to run the business in the ordinary course and not take certain actions without the buyer's consent.

Disputes can arise if conditions are not met by the long-stop date, if one party claims a material adverse change, or if the seller breaches the ordinary course covenants. Draft the conditions, the long-stop date, termination rights and the definition of material adverse change carefully. Where the deal fails, the agreement should say what happens to any deposit or break fee.

Competition approval

Under the Competition Act, an acquisition, merger or amalgamation that crosses the asset or turnover thresholds, or the deal value threshold introduced by the 2023 amendment for transactions above ₹2,000 crore where the target has substantial business operations in India, must be notified to the Competition Commission of India before closing. Some transactions are exempt, including acquisitions by targets with small assets or turnover under the de minimis exemption, and certain intra-group transactions.

Most SME deals fall below the thresholds, but larger deals and acquisitions of technology companies with high valuations should be checked. Closing a notifiable deal without approval exposes the parties to penalties.

Employees in an acquisition

In a share purchase, employees remain employed by the company, and their terms continue. In a business transfer, employees are usually transferred to the buyer, and labour law provisions on transfer of undertakings may require continuity of service and terms, or compensation, depending on the circumstances. Key employees may need retention arrangements, such as bonuses or new ESOPs, to stay after the deal.

Plan communications with employees carefully, especially where restructuring is expected after closing. Under the labour codes in force from November 2025, retrenchment and closure in larger establishments may need government permission, which affects post-deal integration plans.

Post-closing disputes

Post-closing disputes usually involve completion accounts adjustments, earn-out calculations, warranty claims, indemnity claims and breaches of non-compete or non-solicitation obligations. The SPA's dispute clause decides the forum, usually arbitration, often with an expert determination step for accounting disputes. Notice requirements for warranty claims, such as giving notice with reasonable detail within the claim period, must be followed strictly, or the claim may be lost.

Buyers who discover a problem after closing should review the SPA's notice provisions immediately, preserve evidence, and quantify the loss. Sellers who receive a claim should check whether the matter was disclosed, whether limitations apply, and whether the buyer has complied with the notice requirements. See shareholder dispute arbitration.

Earn-outs

Where buyer and seller disagree on value, an earn-out can bridge the gap: part of the price is paid later, based on the business's performance after closing, such as revenue or EBITDA over two or three years. Earn-outs are a frequent source of disputes, because the buyer controls the business after closing and its decisions affect the numbers.

Define the earn-out metrics precisely, the accounting principles, the period, how the business will be run during the earn-out (including any restrictions on the buyer), the seller's information rights, and the dispute process. Without these, an earn-out often ends in arbitration.

Foreign buyers and FEMA

When a foreign buyer acquires shares in an Indian company from residents, the transfer must comply with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019: the sector must allow foreign investment up to the proposed level, under the automatic or government route; the price must be at or above fair value determined by an internationally accepted pricing methodology; and the transfer must be reported in Form FC-TRS through the authorised dealer bank within the time allowed. Investments by entities from countries sharing a land border with India need government approval under Press Note 3 of 2020.

Deferred consideration, escrow and indemnity arrangements in cross-border deals are permitted within limits set by the rules, for example up to 25% of the consideration for up to 18 months. Structure the price mechanics with these limits in mind.

Stamp duty on transfers

Share transfers attract stamp duty, now levied at a uniform rate under the Indian Stamp Act as amended in 2020 for transfers through depositories, and on physical transfer deeds. Business transfers and asset purchases involving immovable property attract stamp duty on conveyance under the state Stamp Act, which can be substantial. In a merger under a scheme, the NCLT's order sanctioning the scheme may itself attract stamp duty in many states, depending on the state law.

Factor stamp duty into the structure and the price, and decide in the agreement who bears it.

Small business sales

Not every acquisition needs the full apparatus of a large deal. For the sale of a small business, a focused due diligence, a clear share purchase or business transfer agreement with sensible warranties, and a simple escrow or deferred payment may be enough. What matters is that the price, what is being sold, the seller's main promises, and the dispute process are written down clearly. We tailor the documents to the size of the deal.