Asset Purchase Agreement sample Format

Narendra Kumar

17 Jun, 2019

What is an Asset Purchase Agreement?

An Asset purchase agreement is also known as APA or Business purchase agreement. An asset purchase agreement (APA) is basically an agreement incorporated between a buyer and a seller which sets out the terms and conditions relating to the purchase and sale of the assets of a company.

What can be purchased through an APA?

Through an asset purchase agreement, any buyer can purchase that can either be tangible or intangible (and liabilities) from the seller for any amount of consideration to be paid in cash or any other way.

Assets that can be transferred through an Asset purchase agreement are:

• Plant and machinery (Tangible)
• Premises (Tangible)
• Contracts (Intangible)
• Know-how (Intangible)
• Goodwill (Intangible) etc.

While executing a perfect APA it is foremost to figure out what the buyer and seller what from such agreement. Only after figuring out all the minute details a good Asset Purchase Agreement can be drafted. As it is a very technical task, it is recommended to appoint professionals for executing a well crafted APA.

How is an APA different from Stock Purchase Agreement?

A Stock Purchase Agreement (SPA) is executed between the buyer and seller for sale of shares of any company. Under an SPA the ownership of any company is transferred from one party to another.

The major difference between a stock purchase agreement and APA is that in the previous one no itemization is required. However, on the other hand, Asset Purchase Agreement are much complex in nature. Under APA there are potential rewards as well as substantial risk for both the parties under the contract. Unlike simple transfer of ownership as the case with SPA, it entails the legal mechanism required for execution of a corporate merger or acquisition. When an SPA is executed along with the ownership assets and liabilities of the business are automatically transferred to the buyer. However, if the buyer only intends to take over a part of assets and liabilities then Asset Purchase Agreement will be executed.

Another major difference between SPA and APA is that in case of Stock Purchase Agreement the seller will be the Shareholder. And on the other hand in case of Assent Purchase Agreement, the will be the Company which is legally the owner of the assets in consideration.

Important Components of an APA

As we have discussed earlier while executing an Asset Purchase Agreement all the relevant and minute details, considerations, and concerns of both the parties must be kept in mind. All such details must be listed out beforehand and only after that an agreement incorporating all of them must be drafted and executed.

Any asset purchase must include all the relevant information including:

• Details of involved parties
• Assets in consideration
• Terms and conditions of transfer
• Consideration or payment
• Rights and duties of both the parties, etc.

Let’s discuss these important components of an Asset Purchase Agreement a little in detail.

• Parties to the Contract: It is important to correctly identify and mention the details of both the parties (buyer and seller). In case of Asset Purchase Agreement, many a time the parties are corporate. Corporate function through various divisions and branches. Thus it becomes very important to identify the entity or division who is the relevant party to the agreement and mention its details along with the authorized representatives.
• Details of Asset: After successful identification of the parties, the second most important part is the asset in consideration which is to be purchased. To mention if the complete asset is for sale or only a part of it is. It is important to give a description with all the necessary specifications. In case if the asset is tangible like land or any equipment, then a full description of the same. Or if it is intangible in nature like technical know-how, goodwill or services of any kind, they must be defined in detail.
• Effective Date of Transfer: The exact date when the assets will be transferred to the buyer should also be mentioned to avoid any ambiguities.
• Consideration: Another essential part of the agreement is the payment or consideration to be paid in exchange for the transfer of the asset. The consideration part shall include all of the following details:

1. How much payment is to be remitted.
2. When is the payment to be made?
3. In which form should the consideration is to be paid. Either cash, kind, securities etc.

• The obligation of the Parties: obligations of the partiers in relation to the contract must be clearly defined. If there are certain exemptions granted to the employees.
• Costing Details: The agreement must also clearly mention the liability of the parties in reference to the costing for execution of the agreement. As to who will make payment of such charges like stamp duty, taxes or any other charges or expenses.
• Representation and warranties: The most important part in the APA are the representations and warranties part. In this part information relating to the legal status of parties, warranty relating to the fitness of the asset, its condition and quality etc at the time of sale are specified in detail.
• Other MiscellaneousProvisions: Other relevant terms and conditions of the agreement are covered under this section. They can be contract based. This can include conditions rendering the contract void, jurisdiction, arbitration, provisions relating to modifications and alterations in the contract etc.