Drafting and Reviewing Asset Purchase Agreements
When purchasing or selling a company’s assets, it is standard to enter into a legally binding agreement known as an asset purchase agreement or APA, which is used to outline the terms and conditions of the sale. An APA may cover a transaction for just one asset or all of a company’s assets. Asset purchase agreements are frequently used in conjunction with other contracts, such as a stock purchase agreement or SPA.
Selling your business (or its assets) can be a challenge; the same goes for buying assets too, so it is important that you have an experienced business lawyer who can work with you to protect your interests, while ensuring that your transaction goes smoothly and without any unexpected roadblocks.
The experienced business team at the law offices of Sandman PLLC is available to help both buyers and sellers with the process of drafting asset purchase agreements and carefully reviewing the terms of an APA before you sign.•
What is an Asset Purchase Agreement? What is Included?
An asset purchase agreement or APA is a legally binding document that outlines the terms and conditions of the purchase and sale of some or all of a company’s assets. Some APAs may include just certain assets, while others may include most or all of a company’s assets.
Assets can be many and varied, from real estate, vehicles, furniture, stock or inventory and equipment, to less tangible assets like the rights to intellectual property, trade secrets, a client database or a business name and brand.
An Asset Purchase Agreements provisions may include:
- a detailed, itemized description of what assets are being purchased (and in some cases, what assets are being omitted from the transaction);
- the purchase price;
- proof of the buyer’s authority to make the purchase and proof of the seller’s authority to authorize the sale;
- terms surrounding any encumbrances or liens on the assets; and
- conditions for the closing.
Notably, an asset purchase agreement is different from a stock purchase agreement (SPA) or a merger agreement. A stock purchase agreement refers to the company’s stock only and is only suitable for certain types of businesses, such as C-corporations or S-corporations.
In cases where there is a merger or acquisition taking place, the entire company, its assets and its liabilities are typically transferred, whereas it is possible to transfer only some of those assets using an APA. The APA also allows some flexibility in terms of the transfer of liabilities.
There are some specific instances where an APA may not be the best choice for a particular transaction. For example, in some cases, complications may arise surrounding transfer of control. For these reasons, it is important that you consult an experienced business lawyer who can help you determine whether an APA is right for you and your unique situation.•
Can’t I Use a Generic APA Online?
There are a number of websites that offer free generic, fill-in-the-blank asset purchase agreements (APAs) and while a generic agreement is sometimes better than no agreement at all, your protection may be extremely limited.
Legal documents must be extremely precise, non-ambiguous and detailed. APAs can be very complex and lengthy, plus each company’s assets are unique to some degree, so a high degree of customization is often required. For this reason, it is strongly recommended that you hire an attorney to draft an APA or review an APA that you are being asked to sign. There is a lot of money at stake and a serious potential for loss if the transaction goes awry, so it is wise to consult our experienced business lawyer to ensure that your interests are protected.