When you are planning to buy assets from another business entity, you want to make sure that you do everything in a precise and cautious manner. You want to make sure that you’ve got everything covered from start to finish in order to avoid any possible complications that may arise due to the transaction. One document that should not be overlooked when it comes to purchasing assets is an asset purchase agreement.
In this article, we would like to give some helpful tips about what you should include in an asset purchase agreement, as well as a basic means of differentiating it from stock purchase agreement. Furthermore, we would also like to share a couple of agreement examples that we hope will give you a better perspective about how this type of agreement looks like. More information can be found below so make sure that you keep reading this article.
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What Is Asset Purchase Agreement?
An asset purchase agreement is an agreement between two parties wherein one party intends to sell assets and the other party intends to buy the assets. Oftentimes, it is used interchangeably with stock purchase agreement.
Asset Purchase Agreement vs. Stock Purchase Agreement
The main difference between an asset purchase agreement and a stock purchase agreement is how assets are itemized in the agreement. When it comes to stock purchase, itemization is not really necessary as the company transfers its ownership to the buyer which includes the titles to the assets and liabilities. In the case of an asset purchase, a buyer will only specify the assets that he/she would like to purchase from the seller, which is the reason why itemization is of high importance for asset purchase. You might also be interested in acquisition agreements.
Important Elements of an Asset Purchase Agreement
When it comes to purchasing assets and coming up with an asset purchase agreement, it would be a good idea to include as much detail as you can. The more details included, the better. Not only does the asset purchase agreement serve as an outline of what has been agreed by the parties involved, it also serves as a description of the assets that will be purchased, a documentation of the terms and conditions agreed on, and a reminder of what the obligations of the parties involved are. You may also see sample contract termination agreements.
Ensuring good agreement format for your asset purchase agreement, you should make sure that you include a couple of important elements in your agreement. To know what these elements are, continue reading this article.
1. The Parties Involved
When it comes to asset purchase agreements, or any basic agreements actually, ensuring that the parties involved are properly identified is of high importance. Since corporate companies have a lot of departments or divisions, it will be a good idea to identify which departments are involved with the transaction.
2. The Assets Purchased
There is a need for you to define what assets have been purchased. You want to make sure that you are as specific and as descriptive as possible to ensure that the items bought are correct. The following may be some of the things that you can include in the description of the purchased items:
- Name of the asset/s
- Quantity per asset
- Service name
- Nature of service
If you are unsure of the names of the assets that have been purchased, you may opt to take a look at the asset inventory template that the company has.
Obviously, since the transaction is a buy-and-sell one, you want to make sure that the prices are also included. More than that, you may also want to make sure that the mode of payment as well as the frequency of payments are also stated in the agreement. This will help to ensure that the seller knows when they should be collecting from the buyer and it also serves as a reminder for the buyer about how much they should be paying and how much balance is remaining. A sample price list template can also be provided by the seller to the buyer for convenience purposes.
4. Representations and Warranties
The parties involved rely on something when it comes to the transaction. Statements of facts about the goods sold and/or purchased usually go into the representations and warranties of an asset purchase agreement. This will cover the overall health of the asset being purchased, the condition or quality, as well as the legal status of the parties who are involved with the purchase. Once signed, it means that the statements provided by the seller and buyer are true. You can also look at confidentiality agreements.
5. Considerations before Closing the Sale
Considerations before closing an asset purchase all depends on the transaction and what has been agreed upon by the parties involved. Usually, the most common considerations are the following:
- Sale approval by a third party. The approval usually comes from the attorney handling the sale or a government body. You may also see settlement agreement samples.
- The delivery of the purchase.
- Repairs or maintenance processes prior to the turnover of the assets. Also check out distribution agreements.
You want to make sure that applicable boilerplate is used in the transaction. This covers any state laws that will govern the transaction, provisions that will state when and how the transaction will be considered as null and void, provisions stating that if a part of the agreement is considered to be void and the remainder of the simple agreement will remain valid, and how modifications or amendments are to be carried out by the parties involved.
Always remember that if you want your agreement to end up being a good and successful one, you want to make sure that you have a meeting with a knowledgeable lawyer to help you out with the word structure and the state laws applicable to the transaction.
Checking out our article about how to write a contract agreement can give the basic tips on how you can come up with good contract agreements.
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How to Ensure Asset Purchase Agreement Is Legally Binding
As we have mentioned, entering asset purchase transactions should be done with utmost care. To make sure that your asset purchase agreement ends up becoming a legally binding agreement, you can follow these steps:
1. Follow steps on how you can come up with an asset purchase agreement and carefully go through the agreement you have drafted to ensure that you have not missed any important detail. You may want to check out sample sales agreement contract.
2. Once you are done drafting the agreement, print it out and give the attorney you hired a copy for double-checking. You may also want to provide the other party a copy of the contract to ensure that you both agree with what is stipulated in the agreement. For easier editing process, you may want to give them a soft copy of the agreement file as well. You may also send the copy via email. You can also check out partnership agreement samples.
3. Give the other party and the attorney enough time to review the agreement that you have come up with. Do not limit them to a certain time frame; however, you can follow up every once in a while to ensure that they are also aware that you are looking forward to see any of the suggested edits that they have. You may also see artist agreement contract samples.
4. Once everything has been finalized and that all the necessary edits have been provided, ask the other party to sign the agreement in order to make the agreement legally binding. You may opt to have the agreement notarized by an attorney.
Now that your asset purchase agreement has been signed, the assets can now be duly turned over to you by the seller.
For more information regarding sales and purchase agreements, our article about sample purchase agreement contracts can give you some useful information.
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