10605 Judicial Drive, Suite A-4 | Fairfax, Virginia 22030
The Importance of an Effective Asset Purchase Agreement
Buying and selling a business usually takes one of two forms: a stock transaction or an asset transaction. In the former, the buyer gains ownership of the entire business entity, taking on all assets and liabilities. In the latter, the buyer acquires only specific assets while the business ownership does not change. For an asset transaction, it is critical to have a carefully drafted agreement that makes clear what is and is not part of the deal.
An asset purchase agreement (APA) outlines what is being transferred, including tangible assets like inventory and equipment and intangible assets like intellectual property and customer goodwill. The APA can also cover any executory contracts or leases that are being assumed by the buyer. If the buyer intends to continue business operations, as opposed to transferring the assets to other another enterprise, the APA can help foster a seamless transition
A well-drafted APA includes these essential provisions:
Purchase price and allocation — The APA should detail the structure of the deal, including price, payment terms and any liabilities the buyer assumes.
Closing terms —The APA should clearly outline the conditions that must be met before the sale is finalized, such as obtaining regulatory approvals and completing due diligence.
Warranties — The APA should provide certain assurances about the condition and ownership of the assets being sold. For example, the seller may warrant that the equipment being sold is free of defects.
Covenants — There may be sub-agreements included. For instance, the seller may promise to not compete with the buyer for a specific period within a geographical location.
Indemnification — This clause protects buyers and sellers in the event of a legal dispute. It describes the financial damages that one party pays to the other party and under what circumstances, including attorneys’ fees and court costs.
Governance — The APA should indicate which state, country or international laws govern the contract for purposes of legality or in case a dispute arises.
Providing for Dispute Resolution — The agreement should include provisions for handling unforeseen circumstances, such as procedures for mediation or arbitration to reach a fair resolution of disagreements without resorting to litigation.
Allocation of liabilities — The agreement should state whether the buyer will assume liabilities on the sold assets or whether the seller will indemnify the buyer for any claims.
Termination provisions — The APA should define the circumstances under which either party can terminate the agreement and spell out the consequences of such termination.
A skilled business lawyer can draft an asset purchase agreement that accurately captures the deal’s key terms, protects both parties' interests and complies with legal and regulatory requirements.
At the law firm of Pikrallidas & Probasco in Fairfax, Virginia, we place our clients' best interests ahead of all else. When you need an experienced attorney to handle your business matter, call us at 703-267-2600 or contact us online.
10605 Judicial Drive,
Suite A-4,
Fairfax, Virginia 22030 United States of America
7290 Centreville Road,
Manassas, Virginia 20111 United States of America
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10605 Judicial Drive, Suite A-4
Fairfax, Virginia 22030
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