An asset purchase agreement is, as it states, a contract between two or more parties, one party being a buyer and the other a seller of said assets. The asset purchase agreement consists of the terms and conditions between buyer and seller.
These conditions within the agreement can be of anything but typically follow price, payment methods, limitations, and exclusion or inclusion of certain assets.
Asset Purchase Agreement Template
Asset Purchase Agreement By State
What Assets can be Purchased?
There aren’t any limitations when purchasing assets via an asset purchase agreement. Assets aren’t limited to strictly physical equipment and machinery. Assets such as intellectual properties, licenses, and patents can be purchased and distributed to the buyer if the seller wishes.
While an asset purchase agreement should cover all assets, separate contracts are written up depending on certain types of assets. For example, stocks are an asset to a company, but they have separate purchase agreements. Land purchase agreements are also usually in their category, even though real estate and land are technically assets.
Stocks are considered an asset, but a stock represents a company’s share. These shares claim ownership of the company and all assets included within it.
While stocks sound like the best case for purchasing assets, they have disadvantages, such as taking on liabilities that you may not know and acquiring the majority of the company and operation. Stocks also come with limitations of forcing others to sell their company shares and give up operational control.
The difference between the stock and asset purchase agreement comes from that catch-all perspective. You may only want a particular IP from the business or a specific asset, depending on your goal. If this is the case, the most attractive option will be an asset purchase agreement.
Land prices vary depending on the land. Some concerns must be addressed, such as natural dangers, soil fertility, minerals, and location.
While it would be easy to include stock and land within an asset purchase agreement, it’s heavily advised not to do it. Land and stock have separate purchase agreements because of the documents, complexity, and regulations.
People ask why transferring business assets should be so formal and go through all this documentation. While, to an extent jumping through extra hoops is a bit of an annoyance, having a written purchase agreement ensures that every party successfully makes it through the transaction with minimal to no loss.
When dealing with a large amount of money or expensive assets, it’s nice to have some assurance that things will work out as a buyer or a seller. This process exists on a smaller level for consumers via guarantees, receipts, and warranties.
You can write your purchase agreement informally, but if you want it done right, it may be best to let your representatives do it for you or a lawyer if you have one.
Additionally, acquiring an asset purchase agreement via a template may be a good thing to do as it will list out each field you need to fill out and do the bulk of the work for you. This template will ease your mind when signing and drafting the agreement.
Whether you draft one or acquire an asset purchase agreement template, you’ll need to understand the fundamentals of the document.
Drafting an asset purchase agreement is a simple process if done informally. First, you’d want to list the assets you wish to acquire or sell. You would then write the amount you are willing to buy or sell these assets and the payment methods.
You would then want to list the parties involved and the rules of the agreement. The asset purchase agreement becomes significantly complex with additional assets purchased, more parties involved, legal fees, and documents.
If you want a more formal following, these are the parts you want to include in an asset purchase agreement.
- Purchase Price and Allocation
- Closing Terms
- Dated Signatures
Even if you don’t use the template, you can reference a free asset purchase agreement template to draft your own and adjust. Looking at an actual asset purchase agreement can also benefit you in understanding the details and sections involved.
The recitals are the first thing you’d want to ensure if you’re creating your asset purchase agreement. The recitals act as a general guide for the purchase agreement. In this case, it will outline the parties involved, the assets, and the intentions of each party in the assets sale contract.
- Definitions. The definitions section will be next, which acts as a reference to the language within the document. Ensuring that every party understands what they mean when stating certain things within the document, the definitions should be clear and robust to ensure everyone understands it.
- Purchase Price and Allocation. You’ll want to detail the purchase price and allocation of the assets within this section. Ensure that no language is vague and that both parties clearly understand the payments made and who will be obtaining the assets and payment.
- Closing Terms. Next, you’ll want to ensure when and how long till this transition occurs. In this section, commonly known as closing terms, you’ll want to confirm the payment dates and any other time-sensitive schedules and information.
- Warranties. Following the closing terms, you’ll want to address the warranties. Warranties are assurances that both parties understand the condition and details of the assets. This section of your asset purchase agreement will ensure all information about the understanding of the document and assets are understood.
- Covenants. The covenant section of the document involves the responsibilities of all parties involved. This section ensures both parties either promise to do what they say they’ll do or not do something specified. For example, both parties agree not to break this contract, or both parties agree to make timely payments and transfer assets. Essentially, it is an agreement that parties will follow through with whatever is within this document.
- Indemnifications. Indemnification consists of the consequences for not following through on their obligations to the purchase agreement. The indemnification section will detail the proper compensation to whichever party was hurt by any obligations not fulfilled from the agreement.
- Governance. Governance is essential, so both parties understand what laws apply to this purchase agreement. It’s crucial to indicate the state, country, and insertional laws that govern your contract. This part is essential to nullify any confusion on what affects and doesn’t affect your agreement.
- Dated Signatures. Finally, all parties must sign the document. The most prominent and formal part of any agreement. Every party involved