Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Acquisition of Business or Undertaking: Slump Sale and Itemised Sale

Updated 11 October 2026 · Fact-checked

Acquiring a business or undertaking means buying the assets and operations, not the shares of the company. It is done by slump sale (lump sum price, no values for individual items) or itemised sale (each asset priced). A business transfer agreement records the deal. The seller needs board approval and, for an undertaking, a special resolution.

Understand Acquisition of Business or Undertaking

When you buy a company's shares, you buy the company with all its history, including hidden liabilities. When you buy its business or undertaking, you buy only what the agreement lists. The seller company stays alive and keeps whatever you leave out. This is why buyers often prefer an asset deal.

There are two ways to price an asset deal. In a slump sale, a whole undertaking is transferred for one lump sum, and no values are assigned to individual assets and liabilities. In an itemised sale, each asset and liability is priced and transferred separately. The choice drives tax, stamp duty, transfer mechanics and employee treatment.

The deal is documented in a business transfer agreement (BTA). It names the business, the assets and liabilities that move, the price and how it is paid, conditions precedent (consents, approvals), representations and warranties, indemnities, employee transfer, a cut-off date, and what happens after closing. Because no court order moves the assets, the BTA must do that work.

The approval route depends on the size of what is sold. Under section 180(1)(a) of the Companies Act, 2013, the Board cannot sell, lease or otherwise dispose of the whole or substantially the whole of an undertaking without a special resolution of members. The Explanation to section 180(1)(a) defines the terms:

An undertaking is one in which the company's investment exceeds 20% of its net worth as per the audited balance sheet of the preceding financial year, or which generates 20% of the total income of the company during the previous financial year.
Substantially the whole of the undertaking means 20% or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.

Contrast this with a share purchase. A buyer of shares deals with the shareholders, and the company's contracts and liabilities stay put. Only if the buyer reaches 90% of the issued equity share capital does section 236 oblige it to notify the company and offer to buy out the minority at a registered valuer's price. An asset deal has no such squeeze-out. It is a private sale between two companies, backed by the seller's own members' approval.

Key rules to remember

Undertaking test (section 180, Explanation): Investment > 20% of net worth (preceding year's audited balance sheet) OR undertaking generates 20% of total income (previous year); If either limb is met, the unit is an undertaking for the approval rule in section 180(1)(a).
Substantially the whole (section 180, Explanation): Value of part sold ÷ value of the undertaking (audited balance sheet, preceding year) ≥ 20%; Test it against the value of the undertaking, not the whole company.
Approval for sale of undertaking (section 180(1)(a)): Board resolution + special resolution of members; A special resolution needs not less than three times as many votes for as against.
Net worth for slump sale tax: Net worth = Value of total assets − Value of liabilities; Depreciable assets at tax written-down value; other assets at book value, ignoring revaluation. Check the exact rule in the slump sale provision of the Income-tax Act, 2025, which applies from the June 2027 session.
Capital gain on slump sale: Gain = Lump sum consideration − Net worth; Under the Income-tax Act, 2025, the gain is long-term only if the undertaking was held for more than 36 months. Confirm the holding period and the net worth rule in the slump sale provision of that Act.
Squeeze-out threshold, section 236: Acquirer or persons acting in concert holding ≥ 90% of issued equity share capital; Applies to share acquisitions only, not to asset deals.

How to solve Acquisition of Business or Undertaking questions

Use this order for any case on acquiring a business or undertaking. It follows provision, analysis, conclusion.

1Identify what is bought: shares, a whole undertaking, or specific assets. State the mode: share purchase, slump sale or itemised sale.
2Check whether a single lump sum is paid without individual values. If yes, it is a slump sale. If each item is priced, it is an itemised sale.
3Apply the undertaking test (20% of net worth or 20% of total income) using the preceding year's audited figures.
4Apply the substantially-the-whole test (20% or more of the undertaking's value) and state whether a special resolution is needed.
5List the approvals: board resolution, special resolution, related party approvals if the buyer is a related party, any lender or regulatory consents, and competition filings if thresholds are met.
6Outline the BTA: parties, transferred and excluded assets and liabilities, price, conditions precedent, warranties, indemnity, employees, closing and post-closing steps.
7Cover consequences: tax (net worth based gain for slump sale), stamp duty on transfer of property, GST treatment, and transfer of contracts and licences.
8Conclude in one sentence that answers the exact question asked.

Quickest way: Four-line asset deal check

When to use it: Use when time is short and the question gives a seller, a buyer and a transfer of business.

Line 1: Name the mode (slump or itemised) and give the reason in one phrase.
Line 2: Run the 20% tests with the numbers given and write the result.
Line 3: State the approvals: board plus special resolution if the test is met.
Line 4: Add the BTA and tax or stamp duty point, then conclude.

Common mistakes in Acquisition of Business or Undertaking

Calling a deal a slump sale although separate values are assigned to assets.
Students focus on the word 'business' and ignore how the price is fixed.
Fix: Look for a lump sum with no item-wise values. Item-wise values mean itemised sale.
Applying the 20% tests to the whole company instead of the undertaking.
The two limbs, undertaking and substantially the whole, are mixed up.
Fix: First test whether the unit is an undertaking (net worth or income test). Then test the part sold against the undertaking's value.
Using current-year figures instead of the preceding year's audited balance sheet.
Questions give several sets of numbers and students pick the latest.
Fix: Use the audited balance sheet of the preceding financial year for the net worth and value tests.
Saying the buyer of an undertaking takes over all liabilities automatically.
Share purchase and asset purchase are treated as the same thing.
Fix: In an asset deal only the liabilities listed in the BTA move. State this as the key advantage over a share purchase.
Applying section 236 to an asset purchase.
Students link any acquisition with the 90% minority buyout.
Fix: Section 236 applies when an acquirer reaches 90% of issued equity share capital. It does not apply to slump or itemised sales.
Computing slump sale gain on book profit instead of net worth.
Ordinary accounting profit logic is used instead of the tax method.
Fix: Deduct net worth (assets less liabilities, with depreciable assets at tax WDV) from the lump sum.

Worked examples

Example 1

Meridian Engineering Ltd sells its Pune unit to Kaveri Industries Ltd for a lump sum of ₹12,00,00,000 with no values assigned to individual items. The unit has depreciable assets with tax written-down value ₹3,00,00,000, other assets at book value ₹7,00,00,000, and liabilities of ₹2,50,00,000. Compute the capital gain on the slump sale and say whether it is a slump sale.

Show the solution

Mode: a single price for the unit, with no item-wise values, is a slump sale.
Total assets for net worth = ₹3,00,00,000 + ₹7,00,00,000 = ₹10,00,00,000.
Net worth = ₹10,00,00,000 − ₹2,50,00,000 = ₹7,50,00,000.
Capital gain = ₹12,00,00,000 − ₹7,50,00,000 = ₹4,50,00,000.
Long-term or short-term depends on the holding period. Under the Income-tax Act, 2025, it is long-term only if the unit was held for more than 36 months (confirm in the slump sale provision of that Act).

Answer: It is a slump sale. Capital gain is ₹4,50,00,000, long-term if the unit was held for more than 36 months under the Income-tax Act, 2025.

Example 2

Sagar Textiles Ltd had a net worth of ₹50,00,00,000 (₹50 crore) in its audited balance sheet for the preceding year. Its Surat division represents an investment of ₹12,00,00,000 and the division's value in that balance sheet is ₹40,00,00,000. The Board proposes to sell assets worth ₹9,00,00,000 of the division to Tapti Retail Ltd. Is a special resolution needed?

Show the solution

Undertaking test: 20% of net worth = 20% × ₹50,00,00,000 = ₹10,00,00,000.
Investment in the division is ₹12,00,00,000, which exceeds ₹10,00,00,000. The division is an undertaking.
Substantially the whole test: ₹9,00,00,000 ÷ ₹40,00,00,000 = 22.5%.
22.5% is not less than 20%, so the part sold is substantially the whole of the undertaking.
The Board cannot proceed on its own. It needs a Board resolution to call the meeting and a special resolution of members under section 180(1)(a), then the BTA can be signed and closed.

Answer: Yes. The Surat division is an undertaking, and 22.5% of its value is being sold, so the Board needs members' consent by special resolution.

Exam tips

Write the mode of acquisition in the first line. Examiners look for slump sale versus itemised sale before anything else.
Show the 20% calculations with numbers. Marks go to the working, not only to the conclusion.
In BTA questions, list clauses under headings: scope, price, conditions precedent, warranties, indemnity, employees, closing. Add practical drafting points.
Always contrast with a share purchase in one or two lines: liabilities, approvals, and section 236 only for a 90% holding.
Say which law you rely on for tax and stamp duty, and avoid quoting a section number you are not sure of.

Practice questions from Acquisition of Company or Business

Acquisition of Business or Undertaking: frequently asked questions

What is the difference between slump sale and itemised sale?

In a slump sale, an undertaking is sold for one lump sum with no values assigned to individual assets and liabilities. In an itemised sale, each asset is priced and transferred separately. The tax, stamp duty and transfer mechanics differ for each.

What is the difference between share purchase and asset purchase?

In a share purchase you buy ownership of the company, so all its liabilities stay with it. In an asset purchase you buy only the assets and liabilities named in the agreement. The seller company continues to exist and receives the price.

Is a business transfer agreement mandatory?

The law does not fix a form, but in practice the deal is documented in a BTA. It sets out what is transferred, the price, conditions, warranties and indemnities. Without it, ownership of assets and liabilities would be unclear.

Do members have to approve sale of an undertaking?

Yes, if the sale covers the whole or substantially the whole of an undertaking. The Board needs the consent of members by special resolution. Substantially the whole means 20% or more of the undertaking's value in the preceding year's audited balance sheet.