Whether you are planning to sell or buy an existing business, there is a likelihood that your transaction will be governed by an Asset Purchase Agreement or APA. Depending on the size and complexity of the transaction, the APA can easily run dozens of pages. If you don`t get used to reading legal documents in your spare time, an agreement of this magnitude can be quite scary. Fortunately, most well-developed asset purchase agreements have a similar basic structure. In this article, I`ll dissect a typical APA, so that when it`s time to check out your own APA, you`ll have a roadmap to what awaits you. Of course, no lawyer can write an article of any kind without including a disclaimer, so here is mine: the information provided in this article does not constitute legal advice and is not intended for that. On the contrary, this section is intended only for general information purposes. They should not act on the basis of the information contained in this article or refrain from doing so. Instead, you should contact a qualified lawyer for advice that would only apply to your respective circumstances. Article III identified when the transaction becomes official, a procedure known as closing. It also lists the documents that each party must bring to the fence.
These documents often include business decisions proving that the buyer or seller has the authority to conduct the transaction, employment contracts for key personnel, competition contracts and reputable certificates. These items contain insurance and guarantees that the seller makes to the buyer, and vice versa. Representations and guarantees are promises that a party makes on itself, business and assets. It is these promises from the seller that drive the buyer to buy the assets. In large agreements, representatives and guarantees can cover dozens of pages. In small stores, lawyers can often reduce the provisions of this item, but the chances are high that whatever the purchase price, you still have a large number of representations and guarantees that the seller is invited to make. In this regard, the parties include other mini-agreements related to the APA. For example, the seller and its owners may stick to or promise not to compete with the business for a period of years after closing. Similarly, the seller`s owners may agree to act as consultants for a short period of time to facilitate the transition of assets from seller to buyer.
The specific agreements contained in this article are very different depending on the size of the transaction and the type of transaction acquired. Finally, interesting things. Article II tells you what the seller sells (acquired assets and liabilities taken) and what the seller holds (excluded assets and excluded liabilities). As a general rule, almost all of the company`s assets are acquired assets. However, not all liabilities (such as contracts and guarantees) become assumed debts. The buyer may not be willing to assume some (or even all) of the seller`s obligations. Identifying the remaining debts to the seller and those transferred to the buyer is a decisive step in negotiating an APA. You may be tempted to skip these definitions. Because who doesn`t know what “tax” means? But resist this urge: these defined terms are essential to the content of the agreement. If you fall asleep somewhere between “code” and “naked,” try treating the definition article like a dictionary: read the other parts of the APA first, and if you see a term basically, go back to the definitions to learn the meaning.