What Is an Asset Purchase Agreement Review?
An asset purchase agreement (APA) is a legal agreement that formalizes the purchase of assets or property. An asset purchase agreement is widespread in business when a significant business asset or collection of assets is being transferred as part of a sale.
Other details, such as warranties, limitations, and price, are also outlined in the agreement.
Here is an article with more information on an asset purchase agreement, including its purpose and structure.
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What Should I Look for in an Asset Purchase Agreement?
An asset purchase agreement, or asset sale agreement, should contain details about the business, buyer, seller, and assets acquired through the transaction. The details should be concise and easy to understand.
APAs must follow a formal structure to ensure they fully protect the business and cover all legally required elements for asset sale. It also ensures that the business is protected through indemnification via limitations and warranties.
Asset purchase can refer to tangible and intangible assets, including businesses, real estate, licenses, and intellectual property.
After the agreement is finalized, the ownership is transferred from the buyer to the seller. This contract is used in all types of business sales, including a new business partnership or joint venture. Using an APA in a partnership agreement establishes each owner’s rights and assets within a shared business entity.
Every asset purchase agreement should include:
- Recitals. The opening portion of the APA outlines the buyer’s and seller’s names and the names of their businesses, if applicable. There should also be a formal acknowledgment of the agreement to sell and transfer ownership of assets from both parties. Their signatures at the bottom of the contract will affirm this acknowledgment and agreement to all the following terms and conditions.
- Definitions. If important keywords are used throughout the agreement, define them at the start of the contract. This ensures that the document is buyer-friendly and establishes mutual clarity. For example, suppose you are selling multiple assets in a single agreement. In that case, you may introduce them once, then agree to refer to them as “Sale” or “Purchase” throughout the document.
- Price and Exclusions. This portion of the APA sets the price of the assets and acknowledges the buyer’s agreement to purchase them for that price. The seller can also include exclusions to the sale deal. For example, selling a business may not involve selling its equipment or machinery, which the seller will take with them after the transaction is complete.
- Warranties. Both parties can make promises to fulfill their part of the agreement. Failure to do so can result in legal consequences. The warranties section helps buyers and sellers avoid last-minute cancellations and incomplete transactions.
- Covenants. A covenant agreement is a separate agreement within the APA. Typical covenants include a noncompetition agreement and a nondisclosure agreement.
- Indemnification. An indemnification clause protects buyers and sellers from litigation in the event of a conflict that leads to a legal dispute. It can outline what course of action parties must take when seeking resolution and specify who is accountable for paying legal costs, such as attorney fees.
Here is an article with ContractsCounsel’s guide to asset purchase agreements, including how they work and what details they should always include.
Why Do I Need an Asset Purchase Agreement?
Asset purchase agreements offer legal protection and greater security when selling an owned asset. APAs help protects you or your business against liabilities while also setting clear boundaries and limitations around the nature of the deal.
If you are a buyer, an asset purchase agreement gives you legally documented proof of the assets you have been promised and any associated warranties. If you are not given what you were promised, you can use the asset purchase agreement to seek legal restitution.
Asset purchase agreements are common in many cases, such as:
- A joint venture agreement
- Business merges or acquisitions
- Buying a business but not its assets (equipment, licenses, etc.)
- Buying business assets but not the business itself
- Purchasing assets that are of high value
Here is an article with greater detail on asset purchase agreements and essential elements.
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Can I Cancel an Asset Purchase Agreement?
An asset purchase agreement should contain a termination clause that allows the buyer or seller to cancel the sale of assets within a set timeframe. In addition, they may be able to automatically cancel an agreement if one party fails to fulfill their responsibilities.
However, if one party wishes to back out of the agreement, they must follow a procedure. They must first write a formal letter of intent to cancel the agreement. Then, they must follow the methods of the dispute resolution agreement outlined in the APA.
Rescission of the agreement can also occur if both parties agree to annul their former agreement. Issuing a cancellation agreement can help protect both parties if they decide to rescind their contract and cancel the asset purchase deal.
Here is an article with more information about the termination of a purchase agreement.
Who Can Review an Asset Purchase Agreement?
An asset purchase agreement lawyer can review your document before signature. Your attorney can perform a comprehensive contract review that ensures the document covers all of the most critical elements and outlines a fair and thorough acquisition.
Asset purchase agreements are often complex and contain many exclusions, limitations, and warranties. Whether you are a buyer or seller, a lawyer can protect your best interests and ensure you get the fairest deal.
According to ContractsCounsel’s marketplace, the average asset purchase agreement cost is $815.33. This figure is calculated based on lawyers’ rates throughout the United States.
Here is an article where you can read more about asset purchase agreement costs and work with an attorney.
Is An Asset Purchase Agreement Legally Binding?
Upon signing, an asset purchase agreement is legally binding. Still, there may be circumstances where even a signed document is not legally valid.
For example, white space contracts are automatically deemed incomplete and legally non-compliant.
Suppose the asset purchase agreement lacks important details, like dates, governing law, and purchase price. In that case, it is also not considered a legal agreement.
As long as a document has everything in place, it is a formal contract between the buyer and seller upon signature. After signing the purchase agreement, you must fulfill your responsibilities and perform any duties outlined in the document.
Here is an article with more information on when to use an asset purchase agreement.
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