Jump to Section
Need help with an Asset Purchase Agreement?
What Is an Asset Purchase Agreement?
An asset purchase agreement, also known as an asset sale agreement, business purchase agreement, or APA, is a written legal instrument that formalizes the purchase of a business or significant business asset. It details the structure of the deal, price, limitations, and warranties.
Due to the legal and financial implications associated with an asset purchase agreement, hire corporate lawyers to help you draft this critical document, or negotiate your deal. They will ensure that your agreement is fair and enforceable under the law.
What Is an Asset Purchase?
An asset purchase is when a buyer agrees to purchase certain liabilities and assets from a company. As such, it also means that the buyer takes on the rewards and risks of the assets or business purchase.
Asset purchases can include the buying of:
- Intellectual property
- And more
Upon completion of an asset purchase, the ownership is transferred from the old entity to the new one. In general, there are protocols and formalities that surround asset purchases.
How Does an Asset Purchase Work?
When a business wishes to purchase assets from another, it notifies the selling company of its intent to buy. This notification is also known as a Letter of Intent . A Letter of Intent signifies the start point of the transaction during negotiation whereby both parties agree on a price, terms, deal structure, and other details of the transaction.
The following considerations should be included in a Letter of Intent:
- Value exchanged for the asset purchase
- Anticipated timeline for negotiations and deal structuring
- Escrow account requirements if any
- Exclusivity to the buyer
- Scope of key warranties and guarantees
- Prohibited buyer and seller activities
- Termination or modification clauses
- Other pertinent details
Your Letter of Intent can be however long or short it needs to be and according to parties involved. However, seek out advice from Letter of Intent lawyers to help you draft this document since it carries specific legal and financial implications. They can also help you work out your asset purchase agreement’s details when the transaction moves forward.
Parts of an Asset Purchase Agreement
Whether you wish to buy or sell an existing business or its assets, you will want to govern the transaction with an asset purchase agreement. Depending upon the details of the transaction, the length of your document will vary. However, the basic structure of an asset purchase agreement is similar regardless of the specifics.
Here are parts of an asset purchase agreement that you may want to include in your document.
The opening paragraph of an asset purchase agreement includes the buyer and seller’s name and address as well as the date of signing. You should also add an acknowledgment of the agreement on behalf of both parties.
Identify keywords that your document will use several times and define them. For example, rather than having to describe the terms of the sale repeatedly, you can collectively refer to it as the “Sale” uniformly throughout the APA. Definitions of specific words will help avoid confusion in the future.
3. Purchase Price and Allocation
In this provision, you should describe what the seller is selling to the buyer as well as any exclusions that apply. Detail the structure of the deal, including price, payment terms, and liabilities the buyer assumes. Since this section may be lengthy, it is not uncommon to shift long lists to an attachment.
4. Closing Terms
Closing is when the transaction is formalized. The closing terms should define what is required to complete the business or business asset’s purchase or sell, including any terms and contingencies.
There are promises that both parties will likely make to each other. Warranties are the representations associated with the purchase. If the seller makes unfounded guarantees, this section is critical for the buyer to pursue legal redress.
Covenants are sub-agreements under the asset purchase agreement. For instance, the seller may promise to not compete with the buyer for a specific period in a geographic location. Depending upon the transaction, the covenants will vary widely.
Indemnification protects buyers and sellers in the event of a legal dispute. It describes the financial damages that one party pays to the prevailing party and under what circumstances, including attorneys’ fees, court costs, and more.
There are numerous bodies of law that may apply to contracts . Your asset purchase agreement should indicate which state, country, or international laws govern your contract for legality purposes or in case a dispute arises.
9. Dated Signatures
No contract is complete without dated signatures from both parties. Ensure that you leave a dateline for each signature since the asset purchase agreement could be signed on different dates. You do not need to get the document notarized.
Your asset purchase agreement will be unique to your situation. Since these transactions tend to be complicated and work in conjunction with other existing contracts, such as partnership agreements , hire transactional lawyers to assist you in this process.
Image via Pexels by Burak K
Advantages and Disadvantages of an Asset Purchase Agreement
If you are considering an asset purchase agreement to formalize the sale of a business or asset, you should consider the pros and cons before deciding to use this type of document. Review the advantages and disadvantages below.
While there are downsides to an asset purchase agreement, there are several distinct advantages, including:
- You can define how you want the transaction to be structured
- Ownership over specified assets are only transferred, which can mitigate legal issues
- You avoid problems with minority shareholders
- Assets can be sold at fair market value (FMV)
- Both parties avoid running into opportunities and instead attract serious buyers and sellers
The advantages of an asset purchase agreement are critical for some businesses. Ultimately, the most significant advantage is that it provides reassurance and an understanding among the parties involved while protecting their legal rights.
Although the positive aspects of an asset purchase agreement are numerous, there are a few disadvantages associated with asset purchase agreements, including:
- You will need to engage in the retitling process, which can be costly
- Employment contracts may need review and renewal
- Specific permits and licenses may not transfer to the buyer without reapplication
- Assets sold well below FMV may result in insufficient capital for the buyer
The decision to use an asset purchase agreement vs. other legal instruments, such as a stock purchase agreement, should be made in conjunction with a legal professional with experience in this area. Otherwise, you could make legal mistakes that affect you later on.
Who Drafts an Asset Purchase Agreement?
Corporate lawyers are the legal professionals who are best-suited to draft an asset purchase agreement. When licensed to practice in your state, they can offer legal advice, help, and guidance with regard to making decisions, structuring agreements, and protecting your legal rights during the transaction.
Ensure that you speak with corporate lawyers as early on in the process as possible. They can do an intake of your objectives, provide recommendations, and draft all documents that are in accordance with local, state, and federal contract laws.
Draft or Review an Asset Purchase Agreement with ContractsCounsel
Avoid leaving this major purchase to chance and online templates. Post your project to ContractsCounsel and start receiving proposals from attorneys in your state today.
Meet some of our Asset Purchase Agreement Lawyers
I have been practicing law for 35 years. In addition to my law degree, I hold an MBA. I've created six companies, currently act as outside counsel to another 12, and have been an advisor to more than 100 startups and entrepreneurs.
I am a licensed and active Business Attorney, with over 20 years of diverse legal and business experience. I specialize in contract review, drafting, negotiations, ecommerce business transactions, breach of contract issues, contract dispute and arbitration. I am licensed to practice in New York and Connecticut. I am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. I negotiate, draft and review a wide array of commercial contracts; provide business strategy and employment advice and assist in the sale of businesses entities. I work extensively with various kinds of contracts. In reviewing agreements, I conduct risk analysis of contract and interpret the terms and conditions so that clients understand exactly what their obligations are under the agreement and are protected as much as the law requires. I am detailed and thorough in my review and drafting of agreements. Additionally, I advise clients on how to limit their liability and lower their contractual risk. I specialize in breach of contract issues and arbitration. I have been a Hearing Officer, presiding over cases and rendering written decisions; a Civil Court Arbitrator presiding over cases in contract law, commercial law, etc., a Judicial Clerk in Civil Court; a Vice President at an Investment Bank and an Attorney at top AML law firms.
Carlos Colón-Machargo is a fully bilingual (English-Spanish) attorney-at-law and Certified Public Accountant (CPA) with over twenty years of experience. His major areas of practice include labor and employment law; business law; corporate, contract and tax law; and estate planning. He is currently admitted to practice law in Georgia, Florida, the District of Columbia and Puerto Rico and currently licensed as a CPA in Florida. He received a Master of Laws from the Georgetown University Law Center in 1997, where he concentrated in Labor and Employment Law (LL. M. in Labor and Employment Law) and a Juris Doctor, cum laude, from the Inter American University.
Graduate of Georgetown Law (J.D. and LL.M in Taxation) Injury Claims Adjuster before law school for top insurer Eight plus years of legal experience Past roles: Associate at premier boutique law firm in the DC metro area Policy Associate at a large academic and research institution Solo Practice Areas of Expertise: Contracts Business Formation Trusts and Estates Demand Letters Entertainment Transactions
As a business law attorney serving Coral Springs, Parkland, and Broward County, FL, Matthew has been recognized as “AV” rated, which is the highest rating an attorney can achieve through Martindale’s Peer Review system. Year after year Matthew is listed in the “Legal Leaders” publication as a top-rated attorney in South Florida in the areas of litigation, commercial litigation, and real estate. Matthew is also a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development.
John Benemerito is the Founder and Managing Partner of Benemerito Attorneys at Law. Admitted to practice in New York and New Jersey, John represents small business owners and startups in the areas of Business and Securities Law. John received his Bachelors Degree at John Jay College of Criminal Justice where he majored in Criminal Justice. Afterwards, he attended New York Law School where he focused his studies on Corporate and Securities Law. John comes from a family of entrepreneurs. From as far back as he can remember he was always involved in his family’s numerous businesses. At the age of fifteen, John entered into a new business venture with his father and managed to grow and maintain that business through high school, college and law school.John is currently a co founder in over five different businesses. After law school, John decided that he wanted to help people like himself. He opened his own law practice and began working primarily with small business owners until he was introduced into the startup world. Ever since that time, John has worked with hundreds of startups and thousands of entrepreneurs from all different backgrounds in helping them achieve their goals. Having been an entrepreneur his entire life, John understands what it takes to create and maintain a successful business. He enjoys sitting down and working with his clients in figuring out each of their unique challenges.
California-based small business attorney handling matters related to securities, mergers & acquisitions, corporate governance, and other business transactions.