Asset Purchase and Sale Agreement Template

An Asset Purchase Agreements (APA), also known as a Business Purchase Agreement or Asset Sale Agreement, is a written agreement to transfer the ownership of the assets of a business from the seller to the buyer. Such contracts may be for the sale of all or some assets of the business. They contain the specific terms that will govern the asset sale between the parties.

What Is an Asset Purchase Agreement?

Sometimes, a buyer may prefer to purchase only certain assets of a company rather than buying all the assets and liabilities of the business as a whole. Asset purchase agreements allow the buyer to buy and the seller to sell only the specified assets of a business. The assets that a buyer commonly buys through these contracts include:

  • Intellectual property
  • Machinery and equipment
  • Customer lists
  • Stock or raw material
  • Technical know-how
  • Goodwill
  • Premises or other properties
  • Seller’s existing contracts

When to Use an Asset Purchase Agreement

This fillable purchase agreement template may be used in a variety of situations. When the buyers and sellers want to choose and pick the assets they want to buy or sell, such contracts serve their purpose. The APA may also be a part of a larger deal such as a joint venture or the sale of a business entity.

The asset purchase transaction may be a part of a mergers and acquisition transaction between two companies, where the acquirer company may purchase specific assets of the target company. It may also be a part of a business expansion plan where the assets are purchased for expanding the business.

Asset Purchase vs. Stock (Share) Purchase

The primary difference between an asset purchase and a stock purchase is that in the former, the buyer and seller agree upon the specific assets that will be sold and the buyer assumes no liabilities, while in a stock purchase agreement, all the assets and liabilities are transferred to the buyer. Another difference between the two is that in asset sales, the company or business sells the assets, while in a share sale, the individual shareholders are the seller of their respective shares.

As a result of a share sale, the buyers acquire shares in the company, while in an asset purchase, they only acquire certain assets of the company. A share purchase is typically a less complex transaction as the buyer takes the assets and liabilities as they find it and as a whole. While in an asset purchase, specific terms and conditions for each asset may be applicable.

Pros and Cons of an Asset Purchase

Before entering into an APA, one must consider its advantages and disadvantages. Some common advantages of an asset purchase include:

  • The parties can decide how the transaction will be structured.
  • For the buyers, an asset purchase agreement is particularly beneficial as it allows them to choose and acquire specific assets. A buyer may assume liabilities only if they want to.
  • Unlike a share purchase agreement, where the minority shareholders may be forced to give up their shares, the buyer does not have to worry about minority shareholders in an asset purchase.
  • There is less risk of hidden liabilities and the buyer needs to spend lesser time on conducting due diligence to find out the hidden liabilities.
  • The parties typically agree to sell the assets at fair market value.
  • The parties assume less risk of running into legal issues later as all the terms and conditions are specified beforehand.
  • The seller does not lose ownership of the business or company from the sale.
  • Asset purchase may support future tax savings as tax deductions may be available for amortization and depreciation of certain assets. The buyer may significantly benefit from future tax savings.

Some of the disadvantages of an asset purchase are:

  • There may be a need to retitle the assets acquired through the sale.
  • Renegotiation of employment contracts with key employees may be required.
  • The purchase price may be higher as compared to a share purchase as the tax costs to the sellers is higher.
  • Permits and licenses needed for using certain assets may not be transferable to the buyer without reapplication or new application.

How an Asset Purchase Agreement Works

Write a letter of intent

The buyer notifies the seller of their intent to purchase the assets of the target business through a “letter of intent.” This letter of intent is the starting point of the negotiation of the asset purchase contract between the parties. The different terms of the asset purchase transaction may be outlined in a letter of intent.

Evaluate the assets

After the letter of intent is sent, both sides proceed usually decide upon the method of valuation that will be used for determining the purchase price. Fair market value is a commonly used method of valuation.

Define and list the assets

The parties then identify the assets that are to be sold under the asset purchase agreement. Such assets are also defined and listed in the final contract.

Draft a purchase agreement

After these important details are discussed with each party, and after the parties agree to the final terms and conditions, the contract containing all of the requisite information is prepared.

Sign and execute the document

After the agreement is finalized and drafted, each party involved should sign the same. After signing, the agreement is executed and possession is transferred from the seller to the buyer.

Download Formspal’s easy-to-understand and customizable Business Purchase Agreement now.

What Information Should Be Included in the Agreement?

The terms contained in the asset purchase transactions should be carefully drafted. While the exact terms may vary depending upon the transfer and the transaction, the following terms are commonly included in the agreement:

Recitals

The recitals usually contain the names of each party, their addresses, and the date of signing.

Asset Description

The agreement should specify the assets that are being sold by the seller. It should also define them. Important details related to the assets should also be mentioned. It is better to be as specific and descriptive as possible about each asset. If there are any exclusions or related liabilities, they should also be specified.

Purchase Price

The purchase price for each asset and the total for all assets should also be included. The deposit to be made and the payment terms are also included in the agreement.

Warranties and Representations

Warranties and representations include the claims made with respect to the assets and the transaction that are relied upon by the buyer and the seller. Mostly, it will include information and promises made by the seller with respect to the quality, condition, or legal status of the assets such as the purchase date, working conditions, or required approvals.

These conditions are particularly important and helpful if either side decides to take legal action against the other in the future.

Indemnification and Covenants

Indemnification terms may include damages that may be payable for any breach of the terms of the contract.

Covenants are sub-contracts within the asset purchase agreement. These may include non-competes or non-disclosures depending upon the type of transactions.

Closing Terms

The closing terms include the pre-conditions that are required to be completed before the agreement can be finalized. These may include approval from third parties or the government, any repairs to be done by the seller, and closing price adjustments. The closing date or the date by which the transfer should be completed should also be mentioned.

Filling Out The Asset Purchase Agreement Template

Formspal’s free and easy-to-use form can be filled out by following these simple steps:

Step 1. Identify the parties

The first part of the agreement, also known as the “recitals,” contains details of each party and the effective date. The seller and buyer should sign on the same date and that date should be mentioned in the recitals. This is the date from which the agreement goes into effect.

Next, enter the name of the seller company or business and also mention the entity type of the business in the next blank. In the fifth blank of the first paragraph, mention the seller company’s owner name, known as the “principal.”

In the last two blanks of the first paragraph, buyer’s information should be mentioned. First, enter the name of the buyer’s company or business, and then in the last blank, mention the entity type of the same.

In the second paragraph of the recitals, mention the name of the seller’s business. In the fourth paragraph of the recitals, the Principal’s ownership in the business selling the assets should be mentioned. If the principal owns the entire business, select “all,” and if the principal owns a part of it, select the second box and mention the percentage of principal’s shareholding.

Step 2. Mention the agreement of purchase and sale

In sub-clause (a) of clause 1, mention the name of the buyer’s business that will be using the assets after the closing and transfer.

Step 3. Indicate the purchase price

In sub-clause (a) of clause 2, mention the amount that has been agreed to be paid for closing the deal. In clause (b), if a deposit is to be made by the buyer, then select the first option and enter the value of the deposit. If no deposit is required, select the second option.

In sub-clause (c), select the first option, if the entire or balance payment after making the deposit is to be made in cash. Select the second option if the buyer is required to evidence a part of the purchase value through a promissory note at the deal closing.

Step 4. Define the termination right

In clause 3, select the first option if a termination deadline is available to the buyer. Mention the date by which the contract can be terminated without any liabilities.

Select the second option if both sides want to keep the option of extending the APA. In such case, neither side can terminate the contract later unless there is a breach of other terms.

Step 5. Identify the closing date

In sub-clause (a) of clause 4, mention the date by which all the formalities and requirements for transfer should be completed and the deal should be finalized in accordance with the agreed terms. This is the closing date.

If the buyer is required to make any kind of cash payment at closing, mention the same in sub-clause (c).

Step 6. Menion the risk of loss

In clause 5, select the first option, if transfer under the APA including delivery and shipment, is the seller’s duty. Select the second option, if the same is the buyer’s duty.

Step 7. Determine the seller’s and principal’s representation and warranties

Both sides should carefully read each sub-clause of clause 6. If any of the representation or warranties mentioned is not applicable to them, they should remove or strike it out.

In sub-clause (a), enter the name of the kind of entity the seller’s business is (S corporation/ LLC/ Sole proprietorship.) Next, enter the name of the State where the business operates or is incorporated. If sub-clause (f), mention the relevant fiscal years of the seller’s accounting statements.

Step 8. Determine the buyer’s representation and warranties

In sub-clause (a) of clause 7, mention the State where the buyer’s business operates or is incorporated.

Step 9. Decide on the non-competition clause

If both the sides have agreed to any non-compete, select the first option in clause 9 and mention the number of months for which such restrictions of non-compete will apply. This period should be reasonable and not too long as lengthy periods of non-compete are usually held invalid. In the second blank, mention the product or services for which the non-compete has been agreed to.

If no non-compete has been agreed to, select the second option in clause 9.

Step 10. Provide the notice requirements

In clause 11, enter the buyer’s and seller’s full address, email id, and contact number for the purposes of serving the notice under the APA.

Step 11. Indicate the governing law

In clause 18, mention the State law that will govern the APA. Also mention the place of arbitration that has been agreed upon keeping in mind the convenience of both the sides.

Step 12. Mention the commissions

In clause 19, mention the name of the official broker involved in the transfer.

Step 13. Include the transition services details

In clause 22, select the first option if it is the seller’s duty to provide transition services. Mention the timeframe in weeks. Select the second option if no transition services have been agreed upon. Select the third option if customized transition services have been agreed upon and mention the same in the blanks provided.

Step 14. Sign the document

The buyer, seller, and principal should properly sign the agreement and mention their name and designation.

Exhibit A

This exhibit contains the list of the items that will be transferred from the seller to the buyer under the APA. Both sides should carefully go through them, select the ones that are included and strike out the ones that are not included.

Where blanks are provided for the description of any particular asset, all relevant details should be mentioned.

Exhibit B

In exhibit B, mention the name of each particular asset that is excluded from the APA and will not be transferred.

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Published: Jun 25, 2021