Asset purchase agreement (APA)

An asset purchase agreement sets out which assets a buyer is taking, which liabilities the buyer is assuming, and which contracts need to be transferred or renewed. The selling corporation continues to exist after closing; it just no longer owns the assets sold. This structure lets a buyer avoid unknown liabilities that stayed behind in the old company.

What an asset purchase agreement typically lists

• The specific assets included, such as equipment, inventory, intellectual property and goodwill
• Assets and liabilities that are excluded and stay with the seller
• Which contracts and leases transfer, and what consents are needed to assign them
• Allocation of the purchase price across asset categories, which affects tax treatment for both sides
• Employee matters, including who is offered continued employment

Consents and assignment problems

Contracts, leases and licences do not automatically transfer just because an APA says so. Many agreements require the other party’s consent before they can be assigned, and some cannot be assigned at all. Chasing down these consents is often the slowest part of closing an asset deal, so buyers and sellers usually start that process well before the closing date.