---

name: prompt-pack-carve-out-transaction-memo
description: Use when a lawyer or corporate advisor needs to draft a strategy memo for a parent company planning to carve out and divest a business unit. Covers legal entity restructuring, separation of shared services, IP and contract assignments, employee transfers, tax structuring, and regulatory approvals. Relevant across MENA (UAE, KSA, LB, EG), DIFC/ADGM, EU, and UK jurisdictions where carve-out complexity varies significantly between civil-law and common-law frameworks.
license: MIT
metadata:
id: prompt-pack.carve-out-transaction-memo
category: prompt-pack
practice_area: corporate-m-a
priority: P2
intent: [strategy, carve-out-transaction-memo, m-a, divestiture, restructuring]
related: [prompt-pack-due-diligence-checklist, prompt-pack-share-purchase-agreement, prompt-pack-business-transfer-agreement, prompt-pack-employees-transfer-tupe]
source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal)
version: "1.0"

Carve-Out Transaction Memo

A carve-out is structurally among the most complex M&A transactions: the seller must simultaneously create a stand-alone business and execute a sale. This skill produces a strategy memo that advisors use to plan and sequence the full lifecycle of a carve-out, from pre-signing separation through post-closing transition.

When to use this

• A parent company is selling a division, subsidiary, or product line and needs a written strategy memo for board, management, or deal team alignment.
• The legal team needs to identify and sequence all legal workstreams before signing a term sheet.
• A buyer wants to understand the legal complexity of a proposed carve-out target before committing to a price.
• The deal team is preparing for regulatory filings or competition clearances that require a clear separation narrative.

Required inputs

Input	Why it matters	Sensible default
Parent company name and jurisdiction of incorporation	Determines governing law for the separation steps	Ask the user
Business unit being carved out	Defines perimeter of the transaction	Ask the user
Target closing structure (asset deal vs. share deal)	Determines whether entity creation is needed pre-signing	Ask the user; default to share deal if an entity already exists
Governing jurisdictions (countries of operation)	Drives regulatory approvals, employee transfer rules, and tax structuring	Ask the user
Indicative deal value or size band	Shapes regulatory thresholds (merger control, FDI)	Not required for memo structure, but note it if known
Target timeline to signing / closing	Reveals whether pre-signing separation steps are feasible	Ask the user

Optional inputs

• Identity of buyer (financial vs. strategic) — shapes exclusivity and TSA negotiating posture.
• Existing third-party contracts in the business unit — flags assignment consent requirements.
• Shared IT / HR / finance systems — defines scope of Transitional Services Agreement (TSA).
• Current employee headcount by jurisdiction — required for TUPE / equivalent worker-transfer analysis.
• Regulatory licenses held by the business unit — some licenses do not transfer; new applications may be needed.

Memo structure

A carve-out strategy memo for a corporate partner should be structured as follows:

1. Transaction overview

• Description of the business unit, its legal and operational perimeter, and the proposed deal structure (asset vs. share deal, with or without a NewCo).
• Key transaction milestones: pre-signing separation, signing, regulatory clearances, closing, TSA period.

2. Legal entity restructuring

• Whether the business unit sits in a dedicated legal entity or must first be carved into one (contribution en nature / hive-down).
• Steps to create a NewCo, including capitalization, directors/managers, and registration timeline in each jurisdiction.
• In civil-law jurisdictions (UAE federal, KSA, LB, EG), note that hive-downs may require notarized asset-contribution agreements and court or ministry approval; allow 6–12 weeks.
• In DIFC/ADGM, a common law Share Sale Agreement can be executed quickly but the DIFC Registrar must approve transfers of shares in DIFC entities.

3. Separation of shared services

• Identify shared functions: finance, HR, IT, legal, procurement, real estate.
• Scope the Transitional Services Agreement (TSA): which services the parent provides post-closing, at what cost, for how long (typically 12–24 months).
• Identify reverse TSA services the carved-out business provides back to the parent.
• Note any "stranded costs" the parent will bear after separation.

4. IP and contract assignments

• Map all IP (patents, trademarks, software, domain names, trade secrets) used by the business unit: owned outright, licensed in from parent, or licensed to third parties.
• Identify which licenses require third-party consent to assign. Counterparty consent rights are common; budget time and negotiation leverage.
• In MENA, trademark registrations are territorial — registration in UAE does not cover KSA; confirm status in each country of operation.
• Draft an IP assignment or license-back agreement where the parent retains IP that the carved-out business will still need.

5. Employee transfers

• In jurisdictions with automatic transfer protections (UAE Labor Law, KSA Labor Law, Lebanese Labor Code, DIFC Employment Law, EU TUPE equivalent):
  • Identify employees by entity, location, and contract type.
  • Flag employees on Saudi Nitaqat quotas, UAE Emiratization requirements, or Lebanese labor ministry registrations — transfers may require regulatory notification.
  • Draft employee notification letters; some jurisdictions require individual consent.
  • Allocate pension / end-of-service gratuity (ESG) liability: MENA jurisdictions impose statutory ESG obligations; allocate accrued ESG to the seller through closing date.

6. Tax structuring

• Assess the cleanest legal route to achieve the desired tax outcome:
  • Asset deal: may trigger VAT (UAE 5%, KSA 15%, EG 14%), stamp duty (LB), and transfer taxes. Some jurisdictions have exemptions for going-concern transfers.
  • Share deal: often more tax-efficient for the seller; buyer gets no step-up in asset base.
  • Holding company interposition: check CFC rules and withholding tax on dividends/royalties in each jurisdiction.
• Identify any internal restructuring steps needed before signing to achieve the optimal structure; timing relative to fiscal year-end matters.
• Flag deferred tax liabilities embedded in the carved-out entity.

7. Regulatory considerations

• Merger control: Assess filing thresholds in all countries of operation. GCC countries (UAE, KSA) have national competition authorities. EG has the Egyptian Competition Authority. Identify multi-jurisdictional filings that could extend timeline.
• Foreign investment screening: UAE, KSA, and EG have FDI restrictions in certain sectors. Identify any restricted sectors and whether ministerial approvals are needed.
• Sector-specific licenses: Banking, insurance, telecoms, and healthcare licenses in MENA typically do not transfer with a share deal and require fresh applications or change-of-control notifications.
• Antitrust / competition: If the buyer is a competitor, prepare a competition assessment early; information-barrier protocols (clean team) may be required pre-signing.

8. Key risks and mitigations

Risk	Probability	Impact	Mitigation
Third-party consent to contract assignment refused	Medium	High	Early outreach; negotiate deal-specific carve-outs in SPA
Regulatory approval delay	Medium	High	Parallel-path filings; long-stop date in SPA
Employee objections or claims	Medium	Medium	Clear communications plan; ESG accrual indemnity
IP ownership gap discovered	Low	High	IP audit at outset; clean-room protocol
TSA disputes post-closing	Medium	Medium	Detailed TSA with service-level metrics and exit-assist obligations

9. Recommended workstreams and timeline

Provide a phased timeline:

• Phase 1 (Pre-signing, weeks 1–8): Legal entity analysis, IP audit, employee mapping, regulatory pre-assessment, TSA scoping.
• Phase 2 (Signing to closing, weeks 8–24+): Regulatory filings, employee consultations/notifications, contract assignment requests, NewCo formation.
• Phase 3 (Post-closing, months 1–24): TSA management, IP migration, system cutover, stranded-cost wind-down.

Jurisdictional notes

Jurisdiction	Key carve-out traps
UAE (onshore)	Hive-down requires MoE approval; Emiratization quotas transfer with employees; VAT grouping must be updated
UAE (DIFC)	DIFC Registrar approval for share transfers; Employment Law Art. 59 on business transfers
KSA	Saudization (Nitaqat) carries over; Ministry of Commerce approval for LLC share transfers to foreigners
Lebanon	Stamp duty on asset transfers; end-of-service indemnity under Labor Code must be ring-fenced
Egypt	Investment Authority (GAFI) involvement for certain FDI structures; VAT at 14% on asset transfers
EU/UK	TUPE or equivalent mandatory; automatic transfer of contracts and employees
OHADA	Fonds de commerce transfer requires publication and 10-day creditor opposition period

Drafting standards

• No [INSERT X] placeholders in the final memo — call out all open items as numbered action points with responsible party and deadline.
• Cite governing law by reference to the named statute or decree-law; do not invent article numbers.
• Use plain language for executive summary sections; reserve technical language for legal workstream annexes.
• State assumptions prominently at the top of the memo.

Common mistakes

• Treating a carve-out as a simple share sale — the separation workstream is as important as the transaction documents.
• Ignoring statutory ESG / end-of-service gratuity accruals, which can be a material liability in MENA.
• Failing to assess license transferability early enough to avoid deal-breaking delays.
• Underestimating TSA complexity — under-scoped TSAs are the leading cause of post-closing disputes in carve-outs.
• Overlooking the interplay between Nitaqat/Emiratization and post-closing headcount changes.

Related skills

• [[prompt-pack-due-diligence-checklist]]
• [[prompt-pack-share-purchase-agreement]]
• [[prompt-pack-business-transfer-agreement]]
• [[prompt-pack-employees-transfer-tupe]]
• [[prompt-pack-transitional-services-agreement]]