Transitional Service Agreement (TSA)
Definition - What does Transitional Service Agreement (TSA) mean?
Transitional service agreements are common when a large company sells one of its divisions or certain non-core assets to a less sophisticated buyer or a newly incorporated company where the senior management is in place, but the back office infrastructure has not yet been assembled. They can also be used during "carve-outs" where a large company spins out a division into a separate public company, and then offers the infrastructure services for a defined period of time.
Divestopedia explains Transitional Service Agreement (TSA)
TSA's should ensure the following key points are fully defined:
- The fee for the general scope of services and additional charges for services beyond the scope;
- The term of the agreement and any available renewal terms;
- The dispute resolution mechanism to deal with discrepancies between the buyer and seller; and
- How the TSA will be transitioned once the buyer is able to assume the administrative responsibilities.