| name | transitional-services-agreement |
| description | Drafts a Transitional Services Agreement (TSA) for post-closing seller-to-buyer service delivery in U.S. M&A transactions. Use when a corporate acquisition requires temporary operational support or seller-provided service continuity after closing. |
| tags | ["agreement","corporate","drafting"] |
Transitional Services Agreement
Bridges closing to operational independence with balanced risk allocation between Service Provider (seller) and Service Recipient (buyer).
Prerequisites
- Transaction agreement — full purchase/merger agreement text; note any TSA mandates, pricing caps, or term limits
- Service inventory — systems and functions the acquired business relies on (IT, HR/payroll, finance, facilities, procurement)
- Closing date — confirmed or estimated (TSA effective date = closing)
- Transition timeline — buyer's self-sufficiency milestones per service category
- Data map — personal data categories processed through shared systems (for DPA exhibit)
Quick Start
- Review transaction agreement for mandated services and pricing constraints
- Catalog all seller-provided services the acquired business depends on
- Draft using the output structure below; attach exhibits A–E
- Align governing law and dispute resolution with the transaction agreement
- 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
| Term | Definition |
|---|
| Services | Per Exhibit A; no implied expansion |
| Transition Period | Closing through termination; per-service end dates permitted |
| Service Levels | Per Exhibit A; default: "substantially the same manner, quality, timeliness, and resources as the 6 months preceding closing" |
| Service Fees | Per Exhibit B; includes reimbursable out-of-pocket |
| Confidential Information | All non-public information disclosed under this agreement |
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.
| Cost Category | Basis |
|---|
| Direct labor | Actual hours × fully-burdened rate |
| Third-party costs | Supporting vendor/contractor invoices |
| Shared resources | Pro-rata by usage, headcount, or reasonable metric |
| Out-of-pocket | Receipted travel, shipping, telecom |
- 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
| Right | Notice | Details |
|---|
| Initial term | — | Closing + [6–18] months; per-service end dates in Exhibit A |
| Extension (Recipient) | 60–90 days | [1–2] extensions × [3–6] months; escalated fees |
| Convenience (Recipient) | 30–90 days | Per service or entire agreement; no penalty |
| Material breach (either) | 15–30 day cure | Sustained non-performance, confidentiality breach, non-payment 30+ days |
| Insolvency/change of control | Immediate | Bankruptcy, receivership, competitor acquisition |
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
| Party | Covers |
|---|
| Provider indemnifies | Gross negligence/willful misconduct; material confidentiality breach; legal violations (data protection, employment); IP infringement not from Recipient specs |
| Recipient indemnifies | Use of services / acquired business operations; acquired business claims (employees, customers, suppliers); Recipient legal violations |
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
Exhibits
| Exhibit | Contents |
|---|
| A — Services Schedule | Per-service description, levels, term, key personnel/systems, dependencies, third-party vendors |
| B — Fee Schedule | Per-service pricing, rates, volume tiers, invoicing frequency |
| C — SLA | Metrics (uptime %, response times), measurement method, reporting, remedies (credits, termination triggers) |
| D — DPA | GDPR Art. 28 / CCPA compliant; data types, sub-processors, security measures, deletion on termination [VERIFY jurisdiction] |
| E — Transition Plan | Per-service milestones, knowledge transfer, governance, party responsibilities |
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
