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How to make an Asset purchase agreement

Finalise terms relating to the sale and purchase of assets using this asset purchase agreement. Under this asset purchase agreement, you only take assets you have agreed to or specified. This is different to a share purchase agreement, where you take the entire company's share capital along with any liabilities, such as debts. Use this asset purchase agreement to set out the agreed elements of the deal, including the amount being paid for the assets and the closing details of the transaction.

Use this asset purchase agreement if you want to:

  • buy or sell assets in a business

  • formalise the asset sale in an agreement 

  • include restrictions on the seller after the asset sale

As a buyer use this agreement when you want to expand your business by way of acquisition of assets.

This asset purchase agreement covers:

  • the list of all assets being sold 

  • the purchase price for the assets

  • assets such as goodwill, freehold and leasehold properties, fixed assets, stock, intellectual property and IT systems

  • warranties 

  • limitation on liability

  • restrictions on the seller post-completion

  • notices

  • confidentiality

  • schedule of employees

  • schedule for stock valuation

An asset purchase agreement is an agreement in which the buyer agrees to purchase assets from the seller. The buyer agrees to pay an agreed amount (the purchase price) in return for the seller transferring title in the assets to the buyer. For further information, read Asset purchase agreements.

You can use this agreement for:

  • goodwill

  • freehold properties

  • leasehold properties

  • fixed assets

  • moveable assets

  • contracts

  • stock

  • business information

  • records

  • third-party rights

  • intellectual property rights

  • IT systems

An asset purchase agreement helps finalise all the agreed terms and conditions of the sale of the assets in the business. If you only want to buy specific assets instead of purchasing an entire company, the asset purchase agreement will enable this.

Warranties are a statement of fact, or promises, that each party gives to assure the other that certain conditions are true. Warranties are particularly important in any asset purchase agreement as they reduce the risks for a buyer. It is up to the buyer to ensure that they fully understand the consequences of completing an asset purchase. One of the main aims of the warranties is to provide the buyer with a potential remedy if a statement about any of the listed assets turns out to be untrue, which can change the true value of the asset. It also acts as an information-gathering mechanism for the buyer and assists in any due diligence prior to completing the asset sale. 

If a warranty turns out to be untrue, for example, a warranty that the seller has good title to each of the assets, then this can result in a successful claim for damages. The buyer will need to show that the breach of warranty resulted in substantial loss, ie. a reduction in value in the asset. 

The consideration is the purchase price payable by the buyer for the assets in the target company. When completing an asset sale it's important that the true value of the assets is reflected in the agreement. It's usual for the parties to obtain a valuation of the assets in the company through completion accounts. This allows for the purchase price to be adjusted in the event that the value of the assets changes.

The buyer to an asset sale may want to impose restrictions on the seller after the sale is completed. Typical restrictions include the seller agreeing to not be involved in any competing business and non-solicitation of customers, suppliers and employees of the target company. 

However, it's important to ensure that the restrictions are reasonable and are not a restraint of trade, in order for them to be enforceable. Therefore the restrictions should be limited in terms of scope (both geographically and functionally) and time. The usual duration is between one to five years. For further information, read Non-solicitation and restrictive covenants.

Limitation of liability clauses limit the amount one party has to pay the other party if they suffer loss because of a breach of contract between them. It is usual for a seller to limit its liability under the agreement, specifically in relation to the warranties, and this is usually accepted by the buyer.

For further information, read Limitation of liability clauses.

If the buyer buys a company by means of a share sale and purchase, the buyer takes on the shares in the target company. The buyer will acquire the target company with all its assets and liabilities. Any liabilities will generally be left behind with the target company from which the assets are purchased on an asset sale.

If a buyer buys a business as a going concern by means of an asset sale and purchase, all the individual assets of the business concerned will be transferred to the buyer together with the goodwill of the business. This means that the buyer can decide which assets in the target company it will purchase and leave behind any liabilities such as debts and pending litigation. 

If you are making warranties that you know to be untrue or conditional, you will need to disclose this in a disclosure letter. This will help prevent any claims for breach of warranty because you have disclosed against a warranty and made the other party aware of this. 

From the buyer's perspective, the disclosure letter aims to get information from the seller relating to the warranties. This information may not have been provided during due diligence. It's important for the buyer to obtain effective disclosure as this will allow the buyer to negotiate and adjust the purchase price of the assets before completion, or even restructure the sale as a share sale. 

Ask a lawyer if you require assistance in creating a disclosure letter.

Following completion (singing of the agreement), there are a few steps the buyer will need to take:

  1. payment of stamp duty and stamp duty land tax (SDLT), if applicable. SDLT is a tax on transactions involving interests in land in the UK 

  2. payment of VAT, is applicable. VAT is chargeable on the transfer of most assets used in a business, assuming that the seller is a taxable person

  3. assignments and novations of contracts with customers and suppliers

  4. administrative matters such as insurance, payroll, PAYE, VAT and pensions

Ask a lawyer for:

  • advice if you're unsure of the warranties being made

  • advice if you're unsure of the restrictions being imposed on the seller

  • advice if you need help with due diligence

  • advice if you need help making a disclosure

  • advice if you think you will have affected employees transferring under the asset sale

  • advice on drafting bespoke terms in an Asset purchase agreement

  • tax considerations when buying assets

This asset purchase agreement is governed by the law of England, Wales or the law of Scotland.

Other names for Asset purchase agreement

Asset sale contract, Business purchase agreement, APA.