Last updated: June 2026
Dev Shah
9 min read
Legal Requirements for Buying a Business in India
The legal structure you choose determines what liabilities you inherit, which licences transfer, and how employees are handled. Get this right before you sign an LOI.
Asset purchase or share purchase — which one applies to you?
In an asset purchase (APA), you buy specific assets — equipment, inventory, contracts — and the seller's legal entity stays with the seller. You start clean, but licences often cannot transfer and every contract must be individually reassigned. In a share purchase (SPA), you buy the equity of the company itself, inheriting its entire history, including undisclosed liabilities. APAs are cleaner for most Indian SMB deals; SPAs get used when complex licences or long-term contracts make an asset purchase impractical.
| Factor | Asset Purchase | Share Purchase |
|---|---|---|
| Inherited liabilities | Limited to what you take on | Full history, including hidden ones |
| Licence transfer | Often must reapply | Licences stay with the entity |
| Contracts | Individually reassigned | Stay in force automatically |
| Employees | Technically terminated, rehired | Continuous service, no action needed |
What legal documents does a business purchase require?
The core documents are: an NDA before any financials are shared, a Letter of Intent with an exclusivity clause, the Asset Purchase Agreement or Share Purchase Agreement with full schedules, stamp duty payment on the signed documents, and registration with the Sub-Registrar where required. For share purchases, board resolutions and MCA company filings are also required.
Key Insight
Do not skip the NDA. Sellers who share detailed financials before you've signed one are rare and it is a red flag either way — either they're careless with confidential information, or the numbers aren't sensitive because they aren't real.
How are employees handled?
In a share purchase, employees remain with the same legal entity, so their service is continuous and no specific action is required. In an asset purchase, the seller technically terminates the employees and you hire them fresh. Employees with 5+ years of service are entitled to gratuity on termination by the old employer, which must be paid at or before closing. Put your intention to hire all employees on the same terms in writing early — this is what prevents departures before closing.
Which licences need to be transferred, and how long does it take?
| Licence | Process | Typical timeline |
|---|---|---|
| GST registration | Surrender and reapply in new entity | 2-4 weeks |
| Trade licence | Fresh application | 4-8 weeks |
| FSSAI food licence | New application | 4-12 weeks |
| Factory licence | State Factories Inspectorate | 4-8 weeks |
| Import Export Code | New online application | 3-7 days |
| Shop and Establishment | New registration | 1-2 weeks |
| Drug licence | Non-transferable — new qualified person required | 8-16 weeks |
Can NRIs buy a business in India, and what FEMA rules apply?
Yes — NRIs can acquire businesses in India. Most acquisitions fall under the automatic route, meaning no prior RBI approval is required. Sectors with FDI restrictions need government approval. Funds must be remitted through proper banking channels and reported to the authorised dealer bank. For share purchases, FEMA pricing guidelines apply and fair value must be determined by a SEBI-registered valuer. Engage a lawyer with specific FEMA experience — the compliance is straightforward when done correctly, but creates serious problems if missed.
Frequently Asked Questions
What is the difference between an asset purchase and share purchase when buying a business in India?
In an asset purchase (APA), you buy specific assets — equipment, inventory, contracts — and the seller's legal entity stays with the seller. You start clean but licences often cannot transfer and contracts must be individually reassigned. In a share purchase (SPA), you buy the equity of the company itself, inheriting its entire history including undisclosed liabilities. APAs are cleaner for most Indian SMB deals; SPAs are used when complex licences or long-term contracts make an asset purchase impractical.
What legal documents are required to buy a business in India?
The core documents are: an NDA before sharing financials, a Letter of Intent with an exclusivity clause, the Asset Purchase Agreement or Share Purchase Agreement with full schedules, stamp duty payment on signed documents, and registration with the Sub-Registrar where required. For share purchases, board resolutions and MCA company filings are also required.
How are employees handled when buying a business in India?
In a share purchase, employees remain with the same legal entity and service is continuous — no specific action required. In an asset purchase, the seller technically terminates employees and you hire them fresh. Employees with 5+ years of service are entitled to gratuity on termination by the old employer, which must be paid at or before closing. Document any intention to hire all employees on the same terms clearly to prevent departures before closing.
What licences need to be transferred when buying a business in India?
Common licences and timelines: GST registration (surrender and reapply in new entity, 2-4 weeks), trade licence (fresh application, 4-8 weeks), FSSAI food licence (new application, 4-12 weeks), factory licence (State Factories Inspectorate, 4-8 weeks), Import Export Code (new online application, 3-7 days), Shop and Establishment (new registration, 1-2 weeks). Drug licences are non-transferable — a new qualified person must be appointed, taking 8-16 weeks.
Can NRIs buy a business in India and what FEMA rules apply?
NRIs can acquire businesses in India. Most acquisitions fall under the automatic route — no prior RBI approval required. Sectors with FDI restrictions need government approval. Funds must be remitted through proper banking channels and reported to the authorised dealer bank. For share purchases, FEMA pricing guidelines apply and fair value must be determined by a SEBI-registered valuer. Engage a lawyer with specific FEMA experience — the compliance is straightforward when done correctly but creates serious problems if missed.
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