An asset purchase agreement is a binding contract that lays out the terms and conditions of the purchase or sale of a business or some other significant type of business asset. Whether you or your company is the purchaser or the seller, this agreement is extremely important, and should only be signed after extensive due diligence efforts.
The Massachusetts business and contract lawyers at the Katz Law Group have helped numerous clients, including many major corporations and small businesses, through this crucial juncture in the transaction.
When Asset Purchase Agreements are Used
Asset purchase agreements should be used whenever you buy or sell a business or a major business asset, like:
- Rights and obligations under a commercial lease
- Licenses, like a restaurant's liquor license
- Patents
- Trademarks
- Copyrights
- Contractual rights
- Portions of a business
Transactions like these can be extremely complex. The terms of the asset purchase agreement outline exactly what is covered in the transaction and aims to eliminate any confusion about it.
What They Should Cover
Every asset purchase is unique, as each particular asset or business has its own value and provides its own share of rights and obligations or liabilities, and each buyer or seller has their own concerns and objectives. The purchase asset agreement should reflect the particular circumstances and the goals of the parties.
However, purchase asset agreements generally have to cover at least the following issues:
- Precisely what is being sold
- The price to be paid
- How the buyer is to pay the seller, such as whether a deposit is required and how much must be provided at the closing of the deal
- Representations by the seller
- Warranties concerning the asset or business
- Indemnification
The rights and obligations of the parties after the deal is complete, like a non-compete agreement that keeps the seller of the asset or business from re-entering the market
These terms can be extremely complex if the asset being sold is an intangible one like intellectual property.
The Importance of Due Diligence Throughout the Process
The asset purchase agreement, however, should only be the final stage in a long and drawn out transaction. The buyer needs to make sure that the purchase will not be one that they regret in the long run, and should thoroughly research and review the obligations and potential liabilities that will come with the asset. They should also go into the process in the knowledge that the seller has a lot to gain from not disclosing information that would reduce the value of the transaction, and should be actively looking out for signs that the seller is not being forthcoming.
Do Not Forget the Tax Implications of the Acquisition
One thing that both the buyer and the seller should keep in mind during the transaction is the tax implications that can arise. Just a few of them are:
- Depreciation
- Amortization
- Capital gains
- Gains deferrals, if the buyer is paying installments
How the purchase agreement is structured can drastically alter the tax obligations each side will face.
Massachusetts Business and Contract Lawyers at the Katz Law Group
Getting experienced legal advice for an asset purchase agreement, as well as for the due diligence process leading up to it, can make the difference between a good and a bad deal. Call the business and contract lawyers at the Katz Law Group at (508) 480-8202 or contact them online.
