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By Sanjeev Kumar
Founding Attorney

When you have a business, are setting up a business, or selling a business, there is the inevitable paperwork that follows. The paperwork can seem never ending. Things can get lost in the shuffle. Oversights are easy when things start to pile up. Unfortunately, the details in the paperwork are important to not only be aware of, but to understand. Legal agreements, such as asset purchase agreements, outline your rights and responsibilities as a party to the agreement. Take the time to understand the purpose of these kinds of agreements and also understand how the terms of the agreement impact you and your legal responsibilities.

What is an asset purchase agreement?

Essentially, an asset purchase agreement is an agreement that outlines the terms and conditions of a sale, purchase, or transfer of assets in a company. These are commonly used when a company is being sold off, but the buyer is not interest in acquiring all of the shares in the company, because this comes with both the company’s assets and liabilities. A buyer will frequently only be interested in taking ownership of certain assets of the business. An asset purchase agreement may involve a number of company assets being sold such as:

  • Company shares, stocks, and other securities
  • Contracts
  • Business premises
  • Machinery
  • Other tangible and intangible business assets

The purchase agreement may include several assets varying in nature. This kind of agreement, however, does not usually apply to an exchange of services.

The asset purchase agreement will include key terms of the transaction. For instance, the sales price of the items to be purchased will be included as will a description of each asset involved in the sale. The agreement will also state the time and date of the purchase and the parties involved in the purchase. Depending on the wishes of the parties involved, the asset purchase agreement can be very specific on matters such as when and how payments will be made and other details. The asset purchase agreement will function as a legally binding contract on each party involved.

If employees are to be affected in any way by the selling or transfer of assets in the asset purchase agreement, as they often are, the agreement will usually address this. The Transfer of Undertakings (Protection of Employment) Regulations (TUPE), protect the rights of employees incident to the transfer of a business. This provision in the asset purchase agreement seeks to protect the rights of employees affected by the agreement.

The asset purchase agreement will also likely contain representation and warranties by both the buyer and the seller. For the seller, this usually means including statements about the past and present relating to the business:

  • Assets
  • Liabilities
  • Property
  • Condition
  • Operation

The buyer usually provides reciprocal representation and warranties to the seller. Any inaccurate representation and warranties made expose the buyer or the seller to liability, depending on who is responsible for the inaccuracy.

Texas Business Law Attorney

Whether it be the review or creation of an asset purchase agreement, or other documents critical to your rights and responsibilities as a business owner or buyer, the Kumar Law Firm is here to help. We provide experienced business law counsel to our clients to make sure their best interests are always protected. 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.