Sometimes a situation may arise when a company needs to divest its assets by selling them to a buyer. In such cases, an asset purchase agreement is drafted that will enable both parties to come together and agree as to how to transfer the assets to the buyer. The asset purchase agreement will spell out all the points to which the two parties are agreed upon. It will also have to meet legal requirements in order to have sound legal standing and this in turn means that everything that needs to be defined in the sale of assets will have been spelt out in the asset purchase agreement. The asset purchase agreement will describe how the assets are to be transferred and what are the assumptions regarding liabilities and most importantly state that the buyer will be purchasing the assets "free and clear of all liens."
The composition of an asset purchase agreement will be a letter of intent, the purchase agreement, an executory period, closing and post closing. The letter of intent spells out the agreement in principle as well as the general understanding of the concerned parties. The purchase agreement describes the negotiation process as well as which assets are included and which are excluded from the proposed sale as well as describing the purchase price, obligations and liabilities, representations and warranties, termination rights and miscellaneous clauses, among others.
The asset purchase agreement will also take note of requirements concerning deposits, assumptions of liabilities, and tax and employee matters with regard to payment to employees on the closing date of
sale. In addition, the agreement shall also specify when and where the deal will be closed. Furthermore, the agreement needs to define the representations and warranties of the seller. The agreement needs to also address how accounts receivable, insurance employee benefit plans, intellectual property rights and licenses and permits will be dealt with. The agreement will also spell out the buyers and sellers obligations. Finally there will be an article in the agreement that covers post closing covenants and one that will be termed miscellaneous which may mainly pertain to legal declarations.
The asset purchase agreement will specify which assets (known as "Acquired Assets") will the seller be selling and may exclude certain assets from the terms of the agreement. In other words, the seller agrees only to sell the acquired assets and excludes other assets not included in the acquired assets list. It shall also state the consideration price that is to be paid to purchase the acquired assets. There may also be a "Noncompete" clause in the asset purchase agreement that prevents the buyer from purchasing or engaging in negotiations with other companies that have business activities similar to the sellers business for a specified period of time and within a specified area.
The asset purchase agreement shall also specify what rate of interest shall be paid to the seller in case the buyer makes payments that are delayed or late. The seller shall also sign all instruments of sale, delivery and handing over as per the buyers' reasonable requests in order to complete the transfer of acquired assets.
Author Resource:-
Wade Anderson is a CPA and operates DigitalWorkTools.com. Click to view an Asset Purchase Agreement
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