An asset purchase agreement is a legal agreement between a buyer and a seller that finalizes terms and conditions related to the purchase and sale of a company’s assets. An asset purchase agreement enables a buyer to select specifically what assets they want to buy and identify what liabilities they are willing to take on.
Assets may include plant and machinery, stock, contracts, premises, know-how, and goodwill.
What are the various sections of an Asset Purchase Agreement?
A good Asset Purchase Agreement should have the jurisdictional information, business information, purchaser information, assets and purchase pricing, payment terms, clauses and warranties, conditions precedents and arbitration details.
Advantages of Asset Purchase Agreement:
Unlike a share purchase agreement, the buyer will be able to selectively pick the assets and liabilities they want to acquire. Since the Asset purchase agreement allows for higher depreciation and amortization deductions, it can result in future tax savings.
Disadvantages of Asset Purchase Agreement:
Since each asset has to be transferred according to its subjective rules, there might be a delay and an increase in transaction costs.
Instead of acquiring all of the shares in a company which leads to buying both assets and liabilities, a buyer can take over certain assets of a business using the Asset Purchase Agreement. Typically in an asset purchase, the company itself will be selling the assets, whereas in a share purchase, the individual shareholders will be the sellers.
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