An Asset Purchase Agreement (APA) is an agreement between a company selling its assets and a buyer who desires to purchase the Seller’s assets. The selling company can sell all of its assets, substantially all of its assets, or even part of its assets. Asset purchase agreements are often complex and involve the buyer acquiring the assets, rights, and/or liabilities of the Seller as part of the purchase. It is important that the Seller’s rights to sell and/or assign any asset or liability are verified and subject to scrutiny through proper due diligence in these types of transactions.
Commonly Overlooked Terms in an APA:
- Representations of seller’s ownership free and clear of any liens or encumbrances
- Terms for adjustments at closing for changes in the condition of the assets
- Acknowledgment of proper UCC and title searches on the assets
- Disclosure of any pending litigation between a party that may have an interest in the assets being sold
- Detailed information as to the assets being transferred and specific identification of any accounts or intellectual property being sold
- Clearly defined default provisions in the event that a party breaches a term or representation prior to closing
- Process or timeline for seeking landlord approval of the buyer when taking over the location of the business is part of the sale
- Contingencies related to the transfer of licenses required to run the business and remedies for failure to transfer
When an APA Makes Sense
An APA is ideal when you want to acquire only specific assets, such as intellectual property, patents, equipment, or real estate, while avoiding a company’s liabilities. APAs are often used when the buyer seeks greater protection from risks like outstanding debts, pending lawsuits, or other obligations. For instance, if a Florida-based company possesses valuable technology but also carries significant debt, purchasing only the desired asset through an APA allows you to bypass those financial liabilities.
Regardless of whether you are the Seller or Buyer, it is strongly recommended that an attorney is hired to represent your interest from the beginning of the transaction. TCLG’s attorneys have extensive experience representing both buyers and sellers in the drafting and negotiation of Asset Purchase Agreements. For assistance with your purchase or sale:
