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Asset Purchase Agreement (APA)

Use our Asset Purchase Agreement template to make a valid document and complete a transaction of assets with another party. Our outline is simple to create and makes the process less stressful. 

Last Update July 5th, 2022

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What Is an Asset Purchase Agreement

An Asset Purchase Agreement is a legal document that formalizes the purchase of assets, without any liabilities, from another business.

An asset purchase occurs when a buyer acquires all or part of a business's assets.

These assets can either be tangible or intangible

The agreement outlines all the terms and conditions of the sale and purchase. The details it includes are commonly the following: 

  • Price

  • Restrictions

  • Warranties

Use ourAsset Purchase Agreement Template to make the outline of your contract simple and mistake-free. 

What Is a Capital Asset?

The IRS defines specific items as capital assets. These items include: 

  • Real estate

  • Domestic furnishings

  • Stocks and bonds

  • Personal belongings

  • Jewelry 

  • Precious metals (gold, for example)

Trademarksand patents are examples of the types of items that are NOT capital assets. 

When Do You Need an Asset Purchase Agreement

For certain transactions, an APA is necessary. These situations include: 

  • Part of a larger business acquisition

  • When buying a specific asset is not covered by different purchase agreements you made with the company

  • Limiting the acquisition to business assets without including the actual business

  • Acquiring specific assets (especially higher value) 

  • Joint ventures 

If you wish to purchase assets, but you find yourself in one of these situations, you will need to use an Asset Purchase Agreement. 

How Does an APA Work?

Before being able to purchase assets, the buyer needs to send a letter of intent to the selling business. 

This will be the starting point of the deal, and then both businesses can begin to negotiate all the terms and conditions of the purchase. 

Asset Purchase Agreement Pros and Cons

Using an APA has both advantages and disadvantages. Before using the document, familiarize yourself with how it can help and how you can remedy any disadvantage.

Pros of an APA Cons of an APA
Able to buy assets at fair market value. Employee contracts could require a renewal.
You have the freedom to structure the purchase. Specific permits and licenses might not transfer to the purchasing party without applying again.
Stay away from dilemmas with minority shareholders. Any asset sold to the buyer below full market value may end in insufficient capital.
Ownership of specific assets is transferred exclusively. This can diminish any legal problems. You must take part in the costly retitling process.

Elements to Include in an Asset Purchase Agreement

Before taking part in a transaction, it is essential to understand the different elements of an Asset Purchase Agreement. 

Have a look at the different parts of an APA below that you can use as an Asset Purchase Agreement checklist that ensures you include every detail. 

  • Personal details: This is the personal information of the buyer and seller, including names and addresses. 

  • Descriptions: Definitions of any words or phrases used repeatedly throughout the contract. 

  • Assets: The assets being bought

  • Purchase amount: Amount the buyer is going to pay in the APA. 

  • Further agreements: Any extra agreements, also known as covenants, which are normal in an Asset Purchase Agreement. One example would be not competing for a certain period. 

  • Warranties: Warranties you are making with the other party. The selling party also needs to include their warranties to you. 

  • Consequences of contract: A list of contract violations, as well as the consequences of those contract violations. 

  • Closing requirements: What is required to finish the agreement. 

  • Signatures: Names and the date you and the other party are signing the contract.

How to Write an APA

To further clarify how to create your document, we have included the following steps. 

Review the following parts of an APA to write your document correctly

Personal Information

Include the date you are signing the contract in addition to the personal details of both you and the other party.

Physical Assets

State the tangible assets in the transaction, as well as how much they are worth. If there are no physical items being sold as part of the sale, then select “No Tangible Assets.”

Non-Physical Assets

Include the non-physical assets in the transaction, as well as how much they are worth. If no intangible items are being sold as part of the sale, then select “No Tangible Assets.”

Cost of Assets 

Include the amount the seller must receive to transfer ownership to the buyer. 

Deposit Details 

Insert a space that provides information about a deposit that must be given to complete the transaction. It should include the amount of the deposit

Also include an option of “Not Necessary” if no deposit is obligatory, and if it is refundable or not. 

Providing Payment

Fill in all the information regarding how the payment will be provided to the seller. It could be given at the closing or by financing, as well as the conditions that go with it.

Establish the interest rate, the term (period), and the due date (if being financed).

3rd Party Approval 

Include a section that makes a 3rd party’s approval necessary or not necessary to complete the transaction. 

Finalization of the Agreement 

Enter a space for the date and time of closing information. This marks the moment the transaction will be finalized

Closing Expenses 

Specify which parties, if not both, will pay for the closing costs of the agreement. 

State Law 

Fill in the name of the state where the agreement will be enforced. 

Extra Provisions 

Enter any extra terms, which are any specific agreements that you and the other party have made together. 

Signature Section

Enter the date you will sign the agreement. Also include your name and signature, as well as the name and signature of the other party. 

With LawDistrict’s Asset Purchase Agreement template,it is simple to write your document without missing any critical information. 

Asset Purchase vs Stock Purchase

When considering buying assets, you might be wondering what the differences between stock and Asset Purchase Agreements are. 

Review the table below to understand how to separate an APA and a stock purchase agreement. 

Stock Purchase Asset Purchase
Taxed as a capital gain to the selling party. Only capital assets are taxed as capital gains. All other assets are taxed as normal income.
Assets do not adapt to fair market value. Assets adjust to fair market value.
Do not change over to the purchasing party. Change over to the purchasing party.

FAQs About Asset Purchase Agreements

To further clarify any doubts regarding Asset Purchase Agreements, LawDistrict has answered the following commonly asked questions

Use the information to help yourself answer any lingering questions you may still have. 

How to Get an Asset Purchase Agreement

There are several ways you can get an Asset Purchase Agreement. Going to a lawyer is a good example of how to get one. 

The main issue is that most methods are time-consuming and expensive. 

Our Asset Purchase Agreement template is simple to download and use.

Who Drafts an Asset Purchase Agreement?

Thanks to our APA template, you can draft an Asset Purchase Agreement without hassle or excessive fees

It is not a bad idea to ask a corporate lawyer for some legal advice when you are drafting your agreement. 

However, you would need to pay much more if they make your document.

What Are the Limitations of an APA?

The problem that can occur with an APA is the negotiation involved. If you and the other party plan on negotiating by email, it could take a lot of time. 

It may also lead to errors and litigation. 

Transferring assets that need licensure or are subject to 3rd party contracts can also make the agreement more difficult to complete. 

Be careful to avoid these problems when making your agreement. 

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