What is an Asset Purchase Agreement Drafting?
An Asset Purchase Agreement (APA) is a contract that outlines the specific assets of a company that a buyer wants to purchase. This could be equipment, intellectual property (IP), licenses, or others. In some cases, the buyer might purchase the whole business.
APAs are flexible in nature, allowing a buyer and seller to customize the terms to suit their transaction. This also means that they have to be drafted professionally and clearly to avoid disputes.
Read the rest of this article to explore APAs in greater detail, how to draft them, and how a lawyer can assist you with the process.
What Key Terms are in an Asset Purchase Agreement?
When drafting an APA, there are important components that must be explained. These typically include the following:
- Purchased assets. The agreement lists the assets the purchase will buy. For clarity, this section should also include the assets that are excluded from the sale.
- Representations and warranties. These are statements and guarantees that parties make to each other about the assets.
- Due diligence. To protect parties, these are the steps involved in ensuring that the representations are accurate. Buyers usually conduct due diligence, which can involve scrutinizing the seller’s financial statements, conducting asset inspections, and more.
- Assumed liabilities. The APA should clarify what liabilities the buyer takes on and which ones will remain the duty of the seller.
- Closing conditions. There might be certain conditions that must be met before the transaction is finalized, such as regulatory approvals.
- Payment terms. All payment terms must be clear to avoid disputes. This section should include the price for the assets and payment methods.
- Covenants. These are promises made by the buyer or seller to prevent them from engaging in potentially harmful activities, and they can include non-compete clauses or confidentiality measures.
What are Tips for Drafting an Asset Purchase Agreement?
When writing an asset purchase agreement, consideration should be made to specific details so that the contract is enforceable and protects both parties’ interests. Here are some things to look for.
Clear Definitions
It helps for the agreement to provide a definition for certain terms that could be confusing, such as excluded assets, closing, and purchase price. This makes the contract more accessible to both parties.
Comprehensive Representations and Warranties
The agreement should contain detailed seller representations, such as that they are legally allowed to sell the assets. Similarly, the buyer’s representations might confirm that they have the financial means to complete the transaction. These guarantees provide trust and make the transaction process much smoother.
Outlined Closing Conditions
Closing conditions give both parties peace of mind that they are taking all required steps before exchanging assets or money. Some common closing conditions include repairing assets and providing updated financial statements for the purpose of due diligence.
Add Miscellaneous Provisions
The agreement should include any relevant additional details, such as confirming that it replaces any prior negotiations between parties. This helps to make it legally enforceable.
Indemnification
Should either party not meet their APA obligations, there should be consequences, such as penalties. In this way, this clause will deter misconduct or agreement breaches.
Other legal consequences for violations can include:
- Injunctions. This is when one party goes to court to stop an ongoing breach.
- Monetary damages. Although compensation can compensate for a breach or violation, it can be challenging to identify a breach after the sale. To prevent this, buyers must get asset warranties to keep sellers accountable against misrepresentation.
Legal Compliance
Every APA should include the state, federal, and/or foreign laws that apply to it so that both parties remain legally compliant.
How Does a Lawyer Help with Asset Purchase Agreement Drafting?
Hiring a lawyer to draft your APA is advisable because there are various terms that must be included for clarity. If there’s any confusion, it can result in disputes and legal or financial consequences.
A lawyer will conduct the following activities to help you draft a legally-solid asset purchase agreement:
- Identifying the assets and liabilities included and excluded in the transaction.
- Drafting clear and specific terms, such as payment schedules, to avoid confusion.
- Conducting due diligence so that there are no hidden risks.
- Checking that intellectual property rights are transferred and maintained.
- Structuring representations and warranties that protect both parties from claims.
- Reviewing all regulatory and legal compliance requirements so that the transaction is legal.
- Negotiating terms in the APA with the other party, if required, to protect both parties’ interests.
- Advising parties on how to resolve disputes that could arise, such as via mediation or arbitration to prevent expensive court proceedings.
Where to Find a Lawyer to Draft an Asset Purchase Agreement
If you need to hire a lawyer to draft your asset purchase agreement, you don’t have to struggle to find the right one for your specific requirements, such as by cold-calling traditional law firms.
Online legal platforms make it easier to hire the right lawyer. On ContractsCounsel, one of the largest online legal marketplaces, you’ll have access to a curated network of vetted lawyers who can help you draft your contracts.
If you want to ask a lawyer on the platform to draft your APA, here are the steps to follow.
1. Go to the ContractsCounsel marketplace, where you can post your project (or request) for free. Include a few details of what you need so you’re directed to the most appropriate lawyers, such as a description of your assets and transaction deadlines.
2. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles based on data provided by the platform, such as their location, client ratings, years of experience, and field of expertise.
4. Hire a lawyer you think is best suited to your requirements to draft your APA so it’s legal and transparent.
