The buyer wants us to sign a highly restrictive two-year Transition Services Agreement with severe financial penalties if we fail to meet service level agreements during the integration. How do we structure the TSA to protect ourselves while ensuring a smooth handoff?

Question

Tyler Smith · Accepted Answer

A Transition Services Agreement, or TSA, is designed to keep the business running smoothly while the buyer integrates operations, but a poorly structured TSA can turn into an operational trap with endless liabilities. To protect yourself, you must treat the TSA as a highly commercial, arms-length service agreement. First, keep the duration as short as possible. Aim for ninety days to six months, with optional monthly extensions at a premium rate to incentivize the buyer to complete the integration quickly. Second, define the scope of services with extreme precision. Document exactly what tasks you will perform, who will perform them, and how many hours per week will be allocated. Anything outside this scope must trigger additional fees. Third, eliminate punitive service level agreements and financial penalties. Your standard of performance under the TSA should be to provide services with the same level of care as you did prior to the closing, nothing more. Finally, ensure the agreement includes a mutual indemnification clause and a clear limitation of liability capped at the total value of the fees you receive under the TSA. If you run your business on EOS®, use your Accountability Chart to designate a specific person to manage the transition process, keeping the rest of your leadership team focused on their day-to-day Rocks to prevent operational drag during the transition.