Most small business sales use an asset purchase agreement as a part of the business transfer from the seller to the purchaser. These contracts can be complex and contain legal jargon and principles. It is always advisable to work with an experienced business attorney to protect your rights in the sale or purchase. Even if you work with an attorney, it is essential to understand the basic components of an asset purchase agreement as a buyer or a seller.
What Is an Asset Purchase Agreement?
An asset purchase agreement, also known as an APA, is a contract that contains the terms and conditions for the sale and purchase of a business or business assets between a buyer and a seller. The seller can select specific assets to sell or exclude from sale.
Asset Purchase Agreement Checklist
An APA should be carefully drafted to fit the unique and specific terms of the contract and must be in writing to ensure enforceability. To be sure your APA includes the key components, use the following checklist:
Parties
The beginning of an APA should include the names and contact information of the buyer and the seller. It should also include the names of any agents or business officers who will sign the agreement.
Correctly identifying the parties to the agreement is essential, particularly if the agreement involves corporate entities that may have multiple subdivisions.
Definitions
The agreement should define all unique or important terms used in the contract to ensure the parties understand the meanings. In this section, you can also abbreviate phrases, long words, or key terms repeated in the document.
Identify Assets
An APA must have a section identifying the thing being purchased. The key to describing the assets is to be as descriptive and specific as possible. The description should be unambiguous about which assets are included and excluded. It should also be clear if and which liabilities, if any, will transfer to the buyer.
Assets can be tangible or intangible. Some tangible items that might be part of an asset sale include:
- Entire businesses (corporations, limited liability companies, etc.),
- Intellectual property,
- Equipment,
- Business contracts,
- Real property,
- Valuable collectibles, and
- Customer lists
Intangible assets might include:
- Employees,
- Knowledge or know-how, and
- Goodwill or reputation.
The more detailed each asset description is, the better it will be for the APA and ensuring it is properly executed. Failure to include assets and liabilities can lead to a more complicated, conflicted, and time-consuming process and can cause the deal to fall apart.
Purchase Price and Terms of Payment
As an APA is a business sale agreement, it is critical to include a section regarding the price the buyer is paying for the assets. This section can also include the terms and method of payment and any other information on how to transfer the seller’s assets.
Representations and Warranties
Representations and warranties are the promises of the buyer and seller that each relies on when agreeing to enter into the deal. A warranty is a promise to do something. For example, a seller may warrant that an asset appraisal will occur before the closing date.
A representation is a statement of fact that one party is certifying as accurate. Common representations in an APA include that the seller holds marketable title to sell the asset, that the parties are in good standing, the condition of the property, or the status or knowledge of any lawsuits that might arise involving the assets.
Representations and warranties hold the parties accountable. If a business doesn’t live up to the seller’s promises, these provisions allow the buyer to take legal action in the event of a loss.
Dispute Resolution
The parties stipulate what happens in the event of a dispute over the APA and how they will resolve it. They can set out specific procedures or types of dispute resolution that must be employed.
Indemnification
If the contract is breached, the indemnification provision protects the non-breaching party. The provision typically states that the breaching party will compensate the non-breaching party for financial damages incurred due to the breach.
Closing Procedures
The closing procedures outline the mechanics of how the closing will take place and what actions must occur before closing the deal. It might also include information about what will happen if the closing does not take place or the closing conditions are not fulfilled.
Call Today
Let The Curley Law Firm Help You with Your Asset Purchase Agreement
Buying or selling a business can be complex and time-consuming. If you are looking to sell or purchase a business or other asset, The Curley Law Firm can help you with your APA. Adam Curley is a savvy business attorney who has practiced law for over 16 years. Adam can review the circumstances of the purchase or sale, provide you with an asset purchase agreement example, and draft and negotiate terms of the APA to protect your rights.
His experience with both large and small business clients allows him to effectively and efficiently resolve nearly any business-related legal issue. As a solo practitioner, Adam can provide individualized, one-on-one attention to each client. Contact The Curley Law Firm today to learn how Adam can help you prepare, plan, or negotiate a successful asset purchase agreement.