An asset purchase agreement sets out the terms and conditions of an agreement to purchase and sell a company’s assets.
Elements of An Asset Purchase Agreement Include:
- Interpretation section that sets forth the definitions of all major terms used in the body of the asset purchase agreement;
- Terms of the purchase and sale of a company’s stock. This lists the purchase price and purchase price adjustments, purchase price allocation, and dispute resolution mechanisms
- Parties’ representations and warranties, which lists all of the statements that buyer and seller are representing and signing off as true representations
- Employee benefits and terms on how to handle accrued bonuses once the transaction is finalized
- Indemnifications for costs that may arise once the transaction is finalized resulting from pre-existing conditions
- Specification of special tax treatment the seller or buyer is entitled to
An asset purchase transaction gives a buyer the ability to choose to purchase specific assets and leave behind other redundant assets. The chosen assets must be itemized in a schedule to the asset purchase agreement. In this type of agreement, assumed material contracts, key customer and supplier contracts, also need to be assigned, along with the consent of the contracting third-party, because otherwise these important business contracts will stay with the selling company. Because of this, a buyer performing due diligence for an asset purchase, must ensure that all assigned customer contracts do not have specific clauses prohibiting contract assignments.