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Home Q&A Forum How is payment structured in an asset purchase agreement?

Business

Asset Purchase Agreement

Illinois

Asked on Oct 13, 2023

How is payment structured in an asset purchase agreement?

I am looking to purchase a business and am currently in the process of negotiating an asset purchase agreement. I would like to understand how the payment is structured in this agreement so that I can make sure that I am getting the best deal possible. I am looking for guidance on how to structure the payment in the agreement so that I am protected and can get the best outcome for my business.

1 Attorney answer

Answer

Business

Illinois

Answered 271 days ago

Talin H.

ContractsCounsel verified

Business Lawyer
Licensed in Illinois
Free Consultation

Congratulations on purchasing a business. Payment by the buyer in an asset purchase agreement can take many forms, or a combination of forms. The simplest is 1) a lump-sum, in which the total purchase price for the business is paid upfront, or 2) installment payments, in which the purchase price is divided into multiple installments over a specified period. It is a good idea to implement some conditional provisions for payment, which provides more protection for the buyer. Options include 3) an earn-out provision, which is used when the final purchase price is contingent on the future performance of the acquired assets or business. The seller may receive additional payments if certain financial targets or milestones are achieved post-acquisition; 4)contingent payments, in which you agree on a lower base purchase price, and additional payments by buyer are made only when triggered by specific events or outcomes, such as new acquisitions or product milestones. Regardless of model used, in most cases I recommend 5) escrow, in which the buyer place a portion of the purchase price in an escrow account for a certain period of time, say 12 months, in order to cover indemnification claims and disputes that arise after acquisition, that were not disclosed or unforeseen during the due diligence process. It is crucial to have the advice of an attorney you can trust through the asset purchase process. Please contact my firm if I may be of service. www.hitiklaw.com

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