APAs offer a great way to expand your business, and/or acquiring new ones! APA stands for an Asset Purchase Agreement and formalizes the specific terms for the sale or purchase of assets in a company. Asset Purchase Agreements are often times confused with a stock purchase agreement or merger acquisition transactions. It is important to note that there are differences, as the parties to an Asset Purchase Agreement can explicitly decide which specific assets to sell, or which ones to exclude. For example, APAs may sell off a “wing” or “division” of a company, rather than the whole thing.
Generally, it is important to be as specific as possible in Asset Purchase Agreements for the purpose of clarity of what each side is either purchasing or selling. This detail can cover every piece of equipment that the business or company has, down to the old printer in the back office. Feeling attached to a piece of equipment that has much sentimental value? That equipment can certainly be listed as an excluded asset from the purchase. Common examples of assets included in an APA include customer goodwill, know-how, property, contracts, equipment, etc.
It’s also crucial to nail down exactly what you expect of the Seller after the purchase agreement is signed. Are they expected to entirely STOP working in the industry, via a non-compete agreement? Are they going to do any sort of earn-out, such that they stay on your team for a while, as you get your version of the company up and running? Are you purchasing their hard assets only and not the IP/brand names, or vice-versa? Are you taking over a lease agreement or franchise?
Some areas that should be considered in an Asset Purchase Agreement are the tax implications, the re-titling of the assets in the name of the buyer, the effect of the sale or purchase on contracts with third parties (which may require renegotiation), and liabilities that would be assumed from the purchase. As with any business transaction, taking the time to do your due diligence is highly recommended.
Asset Purchase Agreements can be a very useful tool for business owners. The most important step in a solid, successful agreement is to have it negotiated and drafted by an attorney knowledgeable in this area; you wouldn’t want to purchase a company only to find that the seller is now your competitor, stealing all of your customers and employees! The attorneys at Sparks Law have helped many clients across various industries navigate their way through the purchase or sale of company assets, while also protecting their interests. If you need an Asset Purchase Agreement, please contact our office today for more information.
This blog was written by JoJo Wei and Jonathan Sparks.