Things to Look for in Asset Purchase Agreements

Sometimes you want to or you have to sell your business. But other times, you don’t want to sell your business–you just want to sell your business’ stuff and assets. That’s an asset purchase agreement.

Why and When They’re Used

An asset purchase agreement allows you to liquidate your property, raise funds, and close up the operations of the business, in one bulk sale. One benefit is that it isn’t a sale of your business itself; you and your corporate structure remain intact, and you continue to own your business’ intellectual property, unless it was included in the asset sale.

Assuming there are no contractual burdens to doing so in the future, you could re-open your business, relocate it, or do what you want to restart it one day.

Just a Sale of Assets

Note that this is sale and purchase of assets; it is not a transfer of the business itself, and that means that any contractual obligations your business may have had, whether to vendors or under any contracts, remain valid and binding. The sale of assets does not include the sale or transfer of any debts (unless specifically included), and thus, your business is not “off the hook” from any financial obligations that it may have had.

What Property is Included?

The first thing that needs to be done is an inventory of your property–all of your property. That includes intellectual property, intangible assets or contingent assets (such as proceeds from an unresolved lawsuit that you might be a party to, if you win the lawsuit). The choice to include or exclude any specific property or asset in the sale is up to you but you don’t want confusion over whether a specific asset was or was not purchased.

Warranties and Guarantees

You also will want to make clear whether you are warranting any included property, and if you are, to what extent. If there are manufacturer warranties, you must check to see if they will transfer to the benefit of the purchaser.

If you are selling accounts receivable, are you making any guarantee that those accounts can or will be collected? If you are selling machinery, are you ensuring that the machinery will work?

Loan Agreements

Some property that might be subject to installment payments, or which is security for repayment of a loan, may have a loan repayment contract that says that a transfer of the property is a default of the loan agreement.

Make sure that you understand the terms of any contracts surrounding property you are selling, and that the buyer does as well–including key repayment and default terms. If repayment is already in default, the buyer should be made aware of the status of the default.

Noncompete Agreements

Those purchasing the assets to your business likely want assurance that you aren’t going to just rebuy everything and compete with them. It isn’t unusual for noncompete agreements to be included in asset purchase agreements, so consider whether it’s a good idea for you.

Buying or selling corporate assets? Call our West Palm Beach commercial litigation attorneys at Pike & Lustig for help.

Source:

law.uh.edu/faculty/jmantel/2018HealthCare/Sample%20Asset%20Purchase%20Agreement.pdf