What Is an Asset Purchase Agreement?
An asset purchase agreement governs a buyer’s purchase of specified business property. Unlike an equity acquisition, in which the buyer acquires ownership interests, an asset transaction allows the parties to identify the property transferred and the liabilities assumed.
An asset buyer does not automatically avoid every historical obligation. Applicable law, contract terms, taxes, employee matters, and successor-liability principles may affect responsibility. An asset purchase agreement attorney can help the parties evaluate these issues before essential terms become difficult to change.
Identifying the Purchased and Excluded Assets
The agreement should state precisely what the buyer will receive. General descriptions may be inadequate when property serves several divisions or the seller plans to retain specific assets.
Purchased assets may include:
- Equipment, machinery, vehicles, furniture, and other tangible property
- Inventory, supplies, raw materials, and work in progress
- Customer, vendor, distribution, licensing, and service contracts
- Trademarks, copyrights, patents, domain names, software, and trade secrets
- Receivables, deposits, permits, records, goodwill, and business names
The schedules should also list excluded assets, which may include cash, tax refunds, corporate records, insurance proceeds, or property used in another operation. Clear schedules help the parties confirm that title, assignments, and possession transfer at closing.
Allocating Assumed and Excluded Liabilities
The buyer may assume obligations under assigned contracts, customer deposits, warranty commitments, or specified employee arrangements. The seller may retain pre-closing taxes, existing debt, litigation, transaction expenses, and obligations tied to excluded assets.
The agreement should also address matters spanning the closing date. A claim made after closing, for example, may concern a product the seller delivered earlier. Because a private allocation may not control the rights of a creditor, employee, agency, or other third party, we coordinate contract protections with diligence, insurance, escrows, and indemnification.
Conducting Asset Purchase Due Diligence
Before committing, a buyer should verify the seller’s ownership and authority to transfer the rights in question. Sellers also benefit from preparing complete records early.
An asset purchase due diligence review may address:
- Corporate organization, ownership, governance, and required approvals
- Title to assets, liens, security interests, leases, and financing statements
- Material contracts, assignment restrictions, and change-of-control provisions
- Intellectual property ownership, registrations, licenses, and contractor assignments
- Employees, independent contractors, benefits, compensation, and workplace claims
- Taxes, permits, regulatory compliance, litigation, and insurance coverage
- Real estate, environmental matters, inventory condition, and equipment maintenance
Diligence findings may lead to corrective action, third-party consent, a price adjustment, special indemnity, or revised closing condition. Material concerns should be addressed in the transaction documents rather than left to informal assurances.
Negotiating the Purchase Price and Payment Structure
The parties may use a fixed price or adjust it for inventory, working capital, assumed debt, transaction expenses, or other closing values. Payment may include cash, seller financing, an escrow, a holdback, or an earnout.
Each method presents distinct concerns. Seller financing creates credit risk, while an earnout may prompt disputes over accounting or post-closing operations. Adjustment provisions should define calculation procedures, review rights, deadlines, and dispute resolution. The parties should also coordinate the purchase-price allocation with qualified tax advisors because it may affect tax reporting and the deal’s economics.
Key Provisions in an Asset Purchase Agreement
Every transaction requires its own terms, but an agreement commonly addresses:
- The purchased assets, excluded assets, assumed liabilities, and excluded liabilities
- The purchase price, deposits, payment timing, and adjustment procedures
- Representations and warranties concerning the business and the buyer
- Pre-closing covenants, access rights, and ordinary-course operating requirements
- Third-party consents, regulatory approvals, and conditions to closing
- Disclosure schedules and exceptions to the seller’s statements
- Indemnification procedures, survival periods, baskets, caps, and exclusions
- Termination rights, remedies, governing law, venue, and dispute resolution
These provisions work together. Broad representations may create post-closing exposure unless the agreement includes appropriate disclosure exceptions, survival periods, claim thresholds, liability caps, and other indemnification limits. Our attorneys explain how the terms affect value and risk and identify practical negotiating priorities.
Consents, Closing Documents, and the Transfer of Assets
Signing the agreement may not complete the transaction. Contracts or leases may require consent, lenders may need to release liens, and permits may require transfer or a new application. Corporate approval may also be necessary.
Closing documents may include bills of sale, assignment and assumption agreements, intellectual property assignments, lease documents, restrictive covenants, escrow agreements, employment agreements, resolutions, certificates, and funds-flow instructions. DiFalco & Fernandez helps clients manage the closing checklist and coordinate the principal agreement with each related document.
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Planning for Employees and Post-Closing Operations
The parties should determine whether the buyer will offer employment to the seller’s workforce and how compensation, benefits, accrued leave, and payroll will be addressed. Operational continuity may also require transition services, customer introductions, technology migration, access to records, or temporary support from the seller. The agreement should define the scope, cost, duration, and termination rights for these obligations.
Our commercial law practice can assist with contracts that support the acquired business after closing and help ensure that operational documents remain consistent with the purchase agreement.
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