Transitional Services Agreement

---
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

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

| 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

- [ ] 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

| 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