What happens if you are struggling to sell your small business? What if a buyer is seeking some of your key assets but is not interested in the entire business? Maybe you need to expedite the process of transitioning out of the business?
What Is An Asset Purchase Agreement (APA)?
It is an agreement that separates the assets owned by the business from the liabilities. When you started your business, you may have set up an S-Corp, C-Corp, LLC, or other entity. That entity acquired assets such as computers, furniture, or equipment and these should show up on the balance sheet.
An APA is an agreement specifically for selling select assets and not acquiring the business entity itself which would also include liabilities.
Parties to the Asset Purchase Agreement:
A purchase agreement identifies the buyer and the seller involved in the transaction – it is important that the business entity (the seller) has proof it owns the asset and can transfer ownership.
Assets to be purchased:
The APA should describe the purchased assets, including important details such as model number, serial number, and anything else that may identify the asset. If selling a group of assets, it is important to state what is not included to avoid miscommunication.
Clearly, price is an essential element in the agreement, but just as important are the payment terms such as a buyer making payments in instalments or paying upfront. Some assets may not be completely owned by the business so if there are loans outstanding for the assets, then both parties need to clearly state who takes the responsibility for payments.
Terms of Asset Transfer:
The contract should set forth the transfer terms of the goods, laying out the rights and responsibilities of both parties.
Relevant context often includes information about the nature of the parties, their business, the date of the agreement, documentation related to the original purchase, repairs, and other important details that can help with the execution of the transaction.
Representation and warranties:
The representations and warranties in an APA outline the condition of the assets, what is and will be supported during and post-transition.
Generally speaking, the more details included, the better for you. You want to also ensure that the agreement can be easily understood by the potential buyer and to protect your interests at every stage of the agreement.