An asset purchase agreements are an agreement that lays out the terms and conditions of the sale of the assets of a business. An asset purchase agreement differs from the sale of a business because the buyer is only acquiring select assets and none of the liabilities of the company. The asset purchase agreement outlines which exact assets are being sold and under what conditions the buyer and seller agreed.
What’s unique about asset purchase agreements is that the seller can choose which assets in the business can be sold. This is very different from other exit options like acquisitions where the buyer acquires the entity including all assets and liabilities. It’s important to have your asset purchase agreement as detailed as possible to avoid any confusion or misunderstanding about which assets are included.
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Components Of Asset Purchase Agreements:
- Identification of parties: The asset purchase agreement should clearly state the buyer and seller of a certain asset
- Asset being purchased: The agreement should also clearly state what specific asset(s) are being purchased and what it does not include.
- Specific conditions: Any conditions agreed upon by the buyer and seller should explicitly be stated. This includes how and when the asset is delivered in addition to any actions that are needed to be done before the transfer of ownership
- Warranties: Any warranties by the seller should be included in the asset purchase agreement. This is included to protect the buyer in the case of a faulty asset and the seller as well
- Price of asset: The price of all the assets being sold has to be clearly stated in the asset purchase agreement as well as payment terms. Will payment be made up front, installments?
Benefits Of Asset Purchase Agreements:
Selection of which assets are sold:
Asset purchase agreements are one of the few ways in which sellers can choose what assets they want to sell in their exit while retaining other assets. Any remaining assets in the business can be sold and the proceeds can be divided by the percentage of ownership amongst shareholders.
Transparency:
Putting the details in writing, the process has more transparency and reassurance for both parties as long as your agreement covers details such as the condition of the assets, warranties, and support tied to the asset, delivery, and payment terms.
Documentation:
An asset purchase agreement provides the seller proof of what was sold and related details for their financial records. This is then recorded on the balance sheet for the business making tax filing and dissolution much easier and compliant. It’s important to have this kind of documentation in your records for a variety of financial and legal scenarios in the future.
To learn more on how you can craft the best asset purchase agreement for your business, consult with an exit coach here and take a free assessment.