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By Sanjeev Kumar
Founding Attorney

As a business owner, you need to know your contracts. This could mean things like lease agreements. It could mean contracts with your employments. It also means understanding contracts involving your business assets. For several reasons, a business may want to sell off some assets. When a business owner is looking to sell the business, a buyer will almost always prefer buying just the business assets. This is, of course, because it helps the buyer avoid many of the liabilities that can be associated with buying the business as a whole. The seller of the business will usually prefer selling the shares of the business as opposed to having the buyer only purchase business assets. Should the business owner be amenable to selling assets of the business, they will need to set forth the details in an asset purchase agreement.

What Is an Asset Purchase Agreement?

In its most basic sense, an asset purchase agreement is a contract between a buyer and a seller to transfer ownership of assets for a specified price. The agreement should be as detailed as possible to prevent the possibility that either party can take advantage of loopholes in any grey areas of the agreement.

A buyer may be interested in purchasing any number of assets from a business, including:

  • Stock
  • Contracts
  • Operational facility
  • Machinery
  • Business processes and procedures
  • Goodwill

Goodwill refers to the assurance a buyer may seek from the seller that he or she is receiving protection from the seller taking future action that would impact things like customers coming back to the business. This may include protections such as an agreement to restrictive covenants in the asset purchase agreement, such as a non-competition clause.

For stock purchases, the asset purchase agreement should identify the amount of stock as well as detail how the stock will be valued at the time of purchase. At the end of the sale, a stock check is usually taken. The stock check will change the estimated stock value to the actual value which will, in turn, become the purchase price.

At a very minimum, the agreement should precisely describe the assets that are being purchased. The way the assets will be transferred should also be set forth as should the rights and responsibilities of both parties to the agreement. The price being paid for the assets should also be included. It is especially important to include representations and warranties as these are the things that the parties to the agreement are relying upon as part of the transaction.

Before closing on the asset purchase, the purchase price should be delivered. Approval of sale should be obtained from any third parties that need to be involved. This may include relevant government agencies. The seller should also make any changes or repairs needed before the close of the sale.

Business Law Attorney

If you are looking to sell business assets or purchase assets from a business, make sure you do things the right way. These transactions can have far-reaching impacts on a business and its financial future. For trusted business legal counsel, the Kumar Law Firm is here for you. The Kumar Law Firm can help you or your business in the establishment of solid business contracts and agreements. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.