What legal documents do I need to buy a business in India?

The core documents are an NDA (before sharing confidential information), a Letter of Intent (before due diligence), and either an Asset Purchase Agreement or Share Purchase Agreement at closing. For asset purchases, you'll also need assignment agreements for contracts, a bill of sale for assets, and a non-compete agreement. All documents require proper stamp duty payment at the applicable state rate.

What is the difference between asset purchase and share purchase in India?

In an asset purchase, you buy specific business assets and create a new entity — you don't inherit the seller's legal history, liabilities, or disputes. In a share purchase, you buy the company itself, including all its history, contracts, licences, and any undisclosed liabilities. Most Indian SMB acquisitions use asset purchases for cleaner outcomes; share purchases make sense when licences are difficult to retransfer or when key contracts cannot be individually assigned.

How long does it take to transfer licences when buying a business in India?

Transfer timelines vary significantly by licence type. GST registration takes 2–4 weeks, trade licences 4–8 weeks, FSSAI 4–12 weeks, and environmental clearances can take months. Drug licences cannot be transferred at all — a fresh licence with a qualified person is required (8–16 weeks). Map all required licences before closing and plan for operational gaps during the reapplication period.

What FEMA compliance do NRI buyers need when buying a business in India?

Most NRI business acquisitions fall under the automatic route, requiring no prior RBI approval (except in FDI-restricted sectors). Equity investment prices must meet FEMA pricing guidelines using SEBI-registered valuers. Acquisition funds must come through proper banking channels to an authorised dealer bank. Engage a lawyer with specific FEMA experience — compliance is straightforward when done correctly but creates significant problems if missed.

Legal Requirements for Buying a Business in India (2026)

The two most important legal decisions in any acquisition are whether to buy assets or shares, and who your lawyer is. Everything else follows from those two choices.

Asset Purchase vs Share Purchase: The Core Decision

Asset Purchase (APA)

You buy specific assets; the legal entity stays with the seller.

Benefits:

• No hidden liabilities inherited
• Cherry-pick the assets you want
• Clean start with a new entity

Challenges:

• Licences must be applied for fresh
• Contracts require individual assignment
• Higher stamp duty in some states

Share Purchase (SPA)

You buy company equity; everything continues under the same legal entity.

Benefits:

• All licences and contracts transfer automatically
• Same GST, PAN, bank accounts continue
• Typically lower stamp duty (0.1%)

Challenges:

• Inherit all undisclosed liabilities
• Past compliance failures are your problem
• Requires very thorough due diligence

Key Insight

Most Indian SMB acquisitions — proprietorships, partnerships, small private limited companies — use asset purchases for cleaner outcomes. Share purchases make sense when licences are genuinely difficult to retransfer or when key contracts cannot be individually assigned.

Key Documents in Sequence

Document	When	Binding?	Key Purpose
NDA	Before any financial sharing	Yes (fully)	Protect confidentiality; mutual; 2–3 year term
LOI	Before due diligence	Exclusivity only	First commercial position; lock in exclusivity
APA / SPA	At closing	Yes (fully)	Complete transaction; all reps, warranties, indemnification
Non-compete	At closing	Yes	2–3 years, same city/state

Licence Transfer Timeline

Licence	Asset Purchase	Share Purchase	Timeline
GST Registration	Surrender + new application	Continues automatically	2–4 weeks
Trade Licence	Fresh application	Continues	4–8 weeks
FSSAI (food)	New application	Amendment	4–12 weeks
Drug Licence	Non-transferable — fresh with qualified person	Amendment possible	8–16 weeks
Factory Licence	State Inspectorate approval	Amendment	4–8 weeks
IEC (import/export)	New IEC application (online)	Amendment	3–7 days
Environmental Clearance	State PCB approval	Varies	Weeks to months
Shop & Establishment	New registration	Amendment	1–2 weeks

FEMA Compliance for NRI Buyers

Most NRI business acquisitions fall under the automatic route — no prior RBI approval required (except in FDI-restricted sectors). Key requirements:

Equity investment pricing must comply with FEMA pricing guidelines using SEBI-registered valuers
Acquisition funds must come through proper banking channels to an authorised dealer bank
Sector-specific FDI restrictions apply in some industries

Engage a lawyer with specific FEMA experience. Compliance is straightforward when done correctly but creates significant complications if missed.

The Closing Sequence

Confirm all conditions to closing are satisfied
Final agreements signed by all parties
Stamp duty paid on all instruments
Funds transferred via RTGS/NEFT
Physical delivery of keys, equipment, inventory
Digital access transferred (email, accounting, domain, POS)
GST, PAN, and regulatory updates filed
Board resolutions and ROC filings (share purchases)
Sub-Registrar registration for property transfers
Transition begins per agreed schedule

Critical rule: Do not release full payment until you have physical possession of the business and confirmed transfer of all key access. Once money moves, your leverage disappears.