Slump Sale

Seamless Transfer of Business Undertakings Without Fragmented Valuation

A slump sale is the transfer of one or more undertakings as a going concern, for a lump sum consideration, without assigning individual values to assets and liabilities. It is a preferred mode of business transfer for achieving tax efficiency, speed, and legal clarity.

What It Means

·       Undertaking: A business unit, division, or segment transferred intact (employees, assets, liabilities, operations)

·       Lump Sum Consideration: One overall price paid for the whole business, not for each asset separately

Governing Laws & Framework

·       Section 2(42C) and Section 50B of Income Tax Act, 1961

·       Companies Act, 2013 (Section 180, 188 – if related party involved)

·       GST Act (Business Transfer as Going Concern is exempt under Notification 12/2017)

·       Stamp Acts (State-wise applicability)

Process

1.     Commercial & Tax Structuring

2.     Board Resolution & Shareholder Approval (if required)

3.     Drafting of Business Transfer Agreement (BTA)

4.     Determination of Net Worth for Capital Gains under Section 50B

5.     Employee & Contractual Transition Planning

6.     ROC filings, GST and PAN updates

7.     Payment and Handover Execution

Key Benefits

·       Tax neutrality under Section 50B

·       Simpler documentation compared to demerger or share acquisition

·       Speedy execution and minimal regulatory interference

·       Avoidance of GST (being a going concern transfer)

Ideal For

·       Companies selling a non-core business unit

·       Startups hiving off divisions for investment

·       Strategic buyers looking for asset + operations takeover

Basic Requirements

·       Slump sale valuation and net worth computation

·       BTA with clear asset, liability, and employee transfer clauses

·       Board/shareholder resolution and approval where required

·       Intimation to tax, labour, and commercial regulators

How LTC can Help

·       Drafting and vetting of Business Transfer Agreement

·       Legal, tax and financial advisory on transaction design

·       Coordination with CAs for net worth computation and 50B reporting

·       Post-transaction compliance: PAN/GST/TAN transitions, registrar filings

·       Transition planning for contracts, employees, licenses and leases