An asset purchase agreement is a legal agreement that formalizes a purchase, protects both parties, and ensures that the sale of a significant business asset is fair and runs smoothly. This is different from a business purchase agreement, which is used for the purchase of an entire business. An asset purchase agreement outlines important details such as:
- The structure of the deal
- The price of the asset
- Limitations of the purchase
- Warranties
Buying or selling a significant business asset is a major undertaking. You need to have an agreement that covers all the bases and does not leave room for interpretation or argument.
Here are 10 things to include in an asset purchase agreement that will help ensure that your agreement is buyer-friendly but fair to everyone involved.
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1. Buyer and Seller Information
Buyer and seller information is critical to include in an asset purchase agreement. Often, an asset purchase starts with a letter of intent. Then, a person, a company, or a joint venture will formally offer to purchase something.
If the seller agrees, they will create an asset purchase agreement, which requires the names of the person, persons, or organizations buying the item and the person, persons, or organization selling the item.
2. Assets Being Purchased
Another important part of an asset purchase agreement is a detailed description of the assets being purchased. The information required will depend on the type of asset, but examples of what might be included are:
- Photographs of the asset
- Model name and number of the asset
- Serial number of the asset
3. Purchase Price and Payment Terms
Every deal comes at a price, another important part of your asset purchase agreement. The purchase price and payment terms section of the agreement should state the following details:
- The total amount being paid
- How it will be delivered (lump sum or installments)
- Any interest that might apply
- Any other information related to payment
This section will usually include information about how payments will be made, the timing of payments, any conditions that must be met for payments to be made, and what will happen if there is a delay in receiving one or more payments from the buyer.
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4. Covenants
The covenants in an asset purchase agreement are essentially the rules that govern the agreement. This might include sections about:
- Confidentiality
- Financing
- Non-competition
- Communication with current customers
This section will consist of the bulk of the deal's terms.
5. Warranties and Disclaimers
Warranties and disclaimers in an asset purchase agreement set out both parties' beliefs and limitations on those beliefs. Warranties are promises made by the seller about the condition or characteristics of the asset, while disclaimers are statements that limit or exclude certain liabilities or responsibilities of the seller.
So, for instance, the seller might warrant that they believe the asset to be in good working order, but also a disclaimer that they are not an expert in that type of equipment.
6. Indemnification
Indemnification in any legal agreement means that one or both parties are exempt from legal action against each other under certain circumstances depending on the terms of the agreement. This usually applies to things they could not have known at the time of sale. Still, there may be other circumstances and situations that apply.
7. Breach of Contract Provisions
Most contracts have a breach of contract provisions, and an asset purchase agreement is no different. This outlines situations where either party has not fulfilled their obligations in terms of the contract, and the remedies the other party can seek when that happens.
This section will often include a list of remedies and other potential actions that the parties may take.
8. Termination and Modification Clauses
In some cases, the parties to an asset purchase agreement might want to include clauses related to a contract termination agreement or modification under specific circumstances. This allows changes to be made even after the contract is completed, provided those conditions are met.
Asset Purchase Agreement Templates
9. Closing Requirements
Most contracts have closing requirements. These could be simple or complex depending on the nature of the transaction and any applicable laws, but they are usually included in an asset purchase agreement. This ensures that both parties know what is required to complete the sale process.
10. Signatures of Buyer and Seller
As always, an asset purchase agreement is a legal document, and both the buyer and the seller must sign it. It will also need to be dated and usually witnessed by one or more people.
Get Help Drafting an Asset Purchase Agreement
Often, people and organizations worry about the asset purchase agreement cost rather than focusing on the benefits it provides.
A formal asset purchase agreement ensures that the asset sale is fair to everyone involved. Like a partnership agreement dictates the terms of a business partnership, this type of contract sets out the terms of a specific transaction.
Since everything is decided during negotiations to structure the deal before the contract is signed, and it’s all formalized in writing, everyone knows exactly where they stand and what happens next.
They also know what kind of recourse they might have if things don’t work out and what they can require from the other party.
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