When you buy a business, you need a legal agreement between you and the seller that formalizes the purchase. For example, an asset purchase agreement, or APA, is used between buyers and sellers selling a company or other significant business asset.
Be careful not to confuse an APA with an SPA ( stock purchase agreement ), which is a document that relates to the sale and transfer of ownership of company shares.
Here is an article that defines an asset purchase agreement.
What Does an Asset Purchase Agreement Lawyer Do?
When you hire a lawyer for an asset purchase agreement, they are usually corporate lawyers with significant business expertise. They understand how to navigate the complexities of a business partnership or joint venture and asset purchases between sole proprietors or entrepreneurs and organizations.
An asset purchase agreement lawyer can draft an APA for you, or they can help you negotiate a better deal with the seller of the assets in question.
The type of assets you purchase will impact the format of your final APA. Types of asset purchase include:
- Intellectual property
- Equipment or machinery
- Business entities
The lawyer will start their work by helping you draft a letter of intent. The letter of intent (LoI) is given to the seller by the buyer. It declares a party’s intention to conduct business with another formally.
Here is an article with an explanation of a letter of intent.
How Much Does a Lawyer for an Asset Purchase Agreement Cost?
The typical asset purchase agreement cost is $815.33 on the ContractsCounsel legal marketplace across all 50 states. This figure is based on the average bid for a flat fee asset purchase agreement.
The cost of your APA project will vary based on factors such as:
- Urgency (how quickly you need the lawyer to draft the APA)
- The complexity of the asset sale
- You had the level of provisions (protections) and custom terms and conditions to complete the transaction.
The final asset purchase agreement will include the key terms and elements you need to securely acquire the assets while maintaining the highest level of legal protection.
Here is an article with ContractsCounsel’s guide about what to include in an asset purchase agreement.
Key Terms in an Asset Purchase Agreement
The most essential parts of an asset purchase agreement you should know include:
- Recitals. The opening portion of the asset purchase agreement introduces the buyer(s) and the seller(s) by name. In addition, it includes the date of the document’s signing.
- List of assets. All of the assets included in the purchase agreement must be listed. You should have as much detail as possible, such as property square footage, monetary value, the extent of services, etc.
- Terms and definitions. The document will explain any key words used to refer to assets or transactions throughout the APA. For example, the entire sale of multiple purchases may be referred to as a “sale” or “deal” throughout the APA.
- Cost of assets. The final, agreed-upon purchase price will be listed in the appropriate currency and total amount.
- Covenants. Covenants are sub-agreements in an asset purchase agreement, including a nondisclosure agreement and a non-competition agreement.
- Warranties. Warranties offer the buyer the opportunity to seek legal restitution if the seller does not uphold their end of the agreement or makes unfounded promises relating to their assets.
- Governing law. The governing law states which judiciary body will oversee future legal proceedings arising from disputes with the asset purchase agreement.
- Indemnification. Indemnification clauses describe what a party will pay for legal fees and other financial damages in the event of litigation.
- Closing terms. Closing terms of an asset purchase agreement outline what circumstances must be met to complete the transaction and transfer of ownership.
- Signatures. Both parties must sign the document in their first and legal last names and include any relevant titles.
APAs can be relatively straightforward or highly complex, depending on the scope of the asset purchase and its associated contingencies.
The most critical elements are the assets and what they include and exclude. For example, what is included if you are acquiring a business property? Do you also receive all of the equipment and furniture within it?
Be as specific as possible to ensure no ambiguity and as little room for legal dispute.
Is an Asset Purchase Agreement Legally Binding?
Any valid asset purchase agreement is legally binding. “Valid” is the key term. Without including certain essential elements of a legal contract, even a mutually agreed upon acquisition could be void in the eyes of the law.
For an asset purchase to be a legal acquisition, you must include an itemized list of all the assets sold as part of the deal. In addition, some aspects of a business, the entire legal entity, and its assets must be written in precise detail.
In a complete merger, an asset purchase agreement includes the complete transfer of a business, including all of its assets and liabilities. In other cases, companies may only sell portions of their business.
Using an asset purchase agreement template can fill in the blanks with your relevant details. However, you should ensure all the key elements are present before considering the document legally valid.
Submitting a generic APA, which you modified to a lawyer for asset purchase agreement review, can help protect your investment.
Here is an article with more details on the most important parts of an asset purchase agreement.
Do I Need a Lawyer for an Asset Purchase Agreement?
With so many free asset purchase agreement templates, you may wonder whether you even need a lawyer. The truth is that there may not always be a need for an attorney to draft an APA from the ground up. However, it would be best if you always consider consulting with an experienced business lawyer before signing any binding document.
While many APA templates have the essential components in place, they may lack other crucial additions to your deal.
Working with a lawyer for an asset purchase agreement is the best way to protect your best interests throughout the entire acquisition process.
Here is an article with an example of a free asset purchase agreement template.
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