Asset Purchase Agreement

An asset purchase agreement is a contract drawn up between a business asset seller and a business asset buyer. This agreement will stipulate the terms of the sales as well as include provisions on the payment of the business asset purchase price. Usually, an asset purchase agreement will have effective dates, closing dates, and later dates where the deals close and both parties sign and exchange documents.

It must be noted that an asset purchase agreement is not the same as a stock purchase agreement, as the latter is a type of agreement overseeing the sale and purchase of company shares (including titles to the assets and liabilities). The key difference between an asset purchase agreement and a stock purchase agreement is that an asset purchase agreement will feature a clear itemization of the assets that are both included and excluded in the purchase.

Here’s a brief breakdown of the components that usually go into an asset purchase agreement:

  • Preamble
  • Recitals
  • Definitions
  • Specific terms of the sale
  • Seller representations and warranties
  • Buyer representations and warranties
  • Covenants
  • Closing conditions
  • Indemnification
  • Tax matters
  • Termination
  • General provisions

As you can see from the above, the asset purchase agreement contains many key sections that lay out the terms of the asset sale and purchase transaction as well as the legal liabilities for both the buyer and seller. That is why it is always recommended for a qualified lawyer to review or draft an asset purchase agreement in order to make sure your rights (either as a buyer or a seller) are protected under the law.

Please also note that a sale of business assets might qualify as a bulk sale which requires a business asset buyer to notify the Tax Department of a pending bulk sale by filing Form AU-196.10 at least 10 days before paying for or taking possession of any business assets, whichever occurs first. Failure to notify the Tax Department might subject the business asset purchaser to business asset seller’s unpaid sales and use taxes.