What to Include in an Asset Purchase Agreement
Aug. 8, 2022
An asset purchase agreement (APA) is a legal contract in which a seller spells out to a buyer exactly what assets are being sold. An APA not only describes the assets to be purchased but also important details like price, warranties, and breach of contract.
APAs are common in mergers and acquisitions and in the outright purchase of another company when the buyer is seeking control of the other company, but they can also be used when only specific property or assets are being sought. The latter can be used when the buyer doesn’t want the liabilities, employees, or financial responsibilities of the other company.
An asset purchase agreement is different from a stock purchase agreement (SPA) in which the buyer is purchasing shares of the target company. In contrast to an APA, an SPA does not need to list the assets being purchased or not being included in the transaction. An SPA transfers ownership to the buyer as is, including all assets and liabilities.
If your business in or around Overland Park, Kansas, is looking to purchase the assets of another company, whether as part of an overall sale of the business or just for specific assets, contact the business law attorney at Coppaken Law Firm. We will make sure your goals and interests are protected and represent you from start to finish, including review and revision of the agreement itself.
Coppaken Law Firm also proudly serves clients in Kansas City, Missouri, and throughout Johnson County and Jackson County.
What Is an Asset Purchase Agreement?
There is no one legal definition of an asset purchase agreement (APA), but the Legal Information Institute (LII) defines it as “a contract under which a seller transfers to a buyer a portion or all of the assets of an entity.”
That definition is simple and direct enough, but the LII goes on to list the many layers of sections that need to be included in an APA, including but not limited to:
Recitals, or descriptions of the background of the transaction.
Definitions of the words and terms to be used in the legal instrument.
Terms and conditions of the sale and purchase of the assets, including purchase price and terms of the purchase (full payment at close, down payment, subsequent payments, etc.)
Terms and conditions of the closing of the agreement, if any.
Representations of both the buyer and seller regarding their authority and responsibilities in the transaction, including legal rights to conduct the deal by both parties.
Post-closing obligations, including any non-compete agreements.
Indemnification rules should something go wrong, including limits on indemnification and bars to double compensation or third-party claims.
Rules for terminating the agreement.
Other miscellaneous clauses, including applicable laws, regulations, permits, licensing, and so on.
When Are Asset Purchase Agreements Used?
An asset purchase agreement can be used to purchase another entity in its entirety either as a merger and acquisition or as a stand-alone deal. This might be the case if the other entity was solely held and not a public corporation with shares to be bought to assume control.
An asset purchase agreement can also be used just to buy certain assets, or even all assets, of another business without assuming any of the liabilities that would come with the purchase of the entire operation. Asset purchase agreements in this manner often include:
Properties, real or otherwise
The Path to an Asset Purchase Agreement
The beginnings of an asset purchase agreement generally commence with a buyer sending a letter of intent to the company whose assets it wishes to acquire. This letter should spell out which assets are being sought, the price and terms of payment being offered, the timeline for the closing of the deal, and other pertinent factors.
Asset purchase agreements can be time-consuming, however. Negotiations following the letter of intent can drag on without either party being satisfied that the deal is in their best interest. If the parties rush into a deal without paying attention to every detail, it is entirely possible that errors and omissions in the document might lead to legal confrontations.
Therefore, if you’re considering the purchase of assets of another entity, you should rely on the experience of a knowledgeable business law attorney to be involved from the very start, beginning with initial contact with a letter of intent, through negotiations, through drafting the APA, and through closing the deal.
Experienced Guidance You Can Trust
Given the stakes of an asset purchase and all the ways in which the transaction can go awry, it’s probably not a good idea to rely on downloadable software to create your asset purchase agreement. The last thing you want is to leave out a detail or a necessary term and condition to protect yourself and then find yourself facing a lawsuit – or initiating one yourself.
Let Coppaken Law Firm advise and guide you from the very beginning with the letter of intent. We will also help you make sure the final agreement actually protects your interests while enabling your ultimate asset acquisition goal.
Coppaken Law Firm proudly serves business clients in Overland Park, Kansas, as well as in Kansas City, Missouri, and throughout Johnson County and Jackson County. Reach out immediately if you’re looking to make an asset purchase.