A Business Separation Agreement is a legal document that is created when a aren’t business is separating from its subsidiaries and starting an organization of their own. This type of agreement is usually created between two parties, which are simultaneously known as the “Parent Organization” and the “Subsidiary”. In the event that the subsidiary has decided to separate from the parent organization, this document is created to take care of the legal processes and thus the name, Business Separation Agreement.
This contract which is a legal document clearly outlines the terms and conditions of the separation, the date from which the separation will come into effect and also the individual responsibilities of both the organizations after the separation has taken place.
When Do You Need a Business Separation Agreement?
The most common application of this contract and or legal document can be found when two organizations, which previously operated as parent and subsidiaries, have decided to separate and start acting as separate entities. This agreement is a legal document that outlines the terms and conditions of the procedure, along with all the other details of the transaction.
This document is legally binding, and thus can be presented in court if there ever is a need for the same.
Inclusions in Business Separation Agreement
- Parties Involved: In most Business Separation Agreements, there are two parties involved; the first being the “Parent Organization” and the second being the “Subsidiary”.
- Effective Dates: This section of the contract outlines the effective date of the contract and mentions from which the terms and conditions mentioned in the contract will come into effect for both the organizations.
- Where does it Apply: This contract is legally binding within the boundaries of the state, city or county it was originally drawn at.
How to Draft a Business Separation Agreement?
Follow the mentioned below steps in order to draw a Business Separation Agreement.
- Organize a meeting between both organizations, that is the Parent organization and the subsidiary which is separating. Discuss upon the terms of the separation, from when the separation will come into effect and also the funds that need to be disbursed if applicable.
- Once both the parties have agreed to the terms and conditions, reach out to a legal team and ask them to draft a Business Separation Agreement on your organization’s behalf.
- Cross verify and check the details with both the parties and file the contract in the local court of law as advised by your legal team.
Benefits of a Business Separation Agreement
The benefits of having a Business Separation Agreement are outlined as below.
Pros of Business Separation Agreement
- This legal document clearly outlines the individual responsibilities of both the parties before and after the contract has come into effect and thus makes sure that both parties are well aware of their duties and responsibilities at all points in time.
- This contract is a legal document and thus can be presented in court if there ever a need in the future for the same.
Cons of not having a Business Separation Agreement
- In the absence of a Business Separation Agreement, both the parties don’t have a legal proof of a transaction ever taking place between both the entities and therefore stand to lose if the matter is ever taken to court.
Key Terms & Clauses in Business Separation Agreement
- Notices: Both the stakeholders in the contract need to issue certain notices to each other and this section of the contract, outlines the details of the same.
- Disclaimers: The parties involved in the creation of the contract need to provide certain disclaimers to each other and this section contains details of the same.
- Remedies: In the case of a lapse in agreed terms and conditions or a default in payment, certain remedies immediately come into effect, the details of which are enclosed in this section of the contract.
- Obligations: Both the parties have certain obligations to each other, during, and after the creation of the contract, the details of which are mentioned here.
[Also Read: Formation and Separation Agreement]
Sample for Business Separation Agreement
Download a sample Business Separation Agreement by clicking here.
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This agreement is made between the Parent Company and the Subsidiary Company on the effective date of 12th November, 2011.
Parent Company represented by
Ms. Julie Trevor – Director
Address: 333 East 45th Street #12E, New York NY 10017
Contact number: (212) 867-0399
Subsidiary Company represented by:
Mr. Jonathan Spear – Director
Address: 350 West 42nd Street #42H, New York NY 10036
Contact number: (212) 842-7255
Terms and Conditions:
- Prior to the signing of this Business Separation Agreement, Spear will tender to “NY Financial” Spear’s shares in NY Financial. Simultaneously, Spears will tender resignation from all or any position that he may currently have as Chief Executive Officer or Director, of NY Financial.
- Prior to the signing of this Business Separation Agreement, Trevor will tender to “Lucas Financials” Trevor’s shares in Lucas Financials. Simultaneously, Trevor will tender resignation from all or any position that she may currently have as Chief Executive Officer or Director, of Lucas Financials.
- Both the parties “NY Financials” and “Lucas Financials” shall enter into a non-disclosure, confidential and limited business separation agreement with each other.
- Except as referenced herein, this Business Separation Agreement will contain all of the essential terms and conditions, undertakings and covenants of “NY Financials” and “Lucas Financials” with respect to various transactions contemplated hereby.
IN WITNESS WHEREOF, the parties “Parent Company” and “Subsidiary Company” have executed this Business Separation Agreement as on the date set forth which is 11/12/2011 (MM/DD/YY).
SIGNED FOR AND ON BEHALF OF PARENT COMPANY BY:
SIGNED FOR AND ON BEHALF OF SUBSIDIARY COMPANY BY: