Transition Services Agreement (TSA) Explained – Support After a Carve-Out

If you're only selling part of the business — a carve-out — it's often unrealistic for the sold part to operate fully independently from day one. The typical solution is a Transition Services Agreement (TSA).

What is a TSA?

A TSA is an agreement that the selling party (or the remaining part of the business) continues to provide certain functions to the sold part for a defined period after closing — for a fee. It gives the buyer time to build their own infrastructure without operations stopping.

What functions does a TSA typically cover?

• IT operations and system access
• Payroll and HR administration
• Bookkeeping and finance function
• Office and warehouse facilities
• Customer service until an independent setup is ready

How long does a TSA typically run?

From a few months to a single year, depending on how complex the separation is. The more integrated the sold part has been into the overall business, the longer a transition period is typically needed.

How is a TSA priced?

Typically at cost or cost plus a small markup — the purpose is rarely to make money on the agreement, but to ensure a smooth transition for both parties. The price and scope should be agreed concretely alongside the transfer agreement itself.

What can go wrong without a TSA?

Without a clear agreement, the sold part risks being left without critical functions from day one — which can harm both operations and the relationship between the parties right after a deal that otherwise went well.

Frequently asked questions

Is a TSA only relevant for carve-outs?

Primarily yes — for a full sale of the entire business, the need is rarer, unless the seller (e.g. as part of a transition period) continues to provide specific functions.

Can a TSA be extended if the buyer isn't ready in time?

Yes, this should be built in as an option in the agreement from the start, so you don't have to renegotiate under pressure if the timeline slips.

What happens if one party breaches the TSA?

Like the rest of the transfer agreement, it should have clear breach provisions — including what happens to operations if a critical function suddenly stops.