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The process of selling or buying a business is an extremely time consuming one that requires an awful lot of paperwork and legal wrangling. It can take months to finalize a deal as a direct result of the negotiations. During that time, the sale or acquisition of the entire business often rests on the negotiations as to what the final price includes. As such, when you are either selling your business or buying another one then there are several legal documents and contracts you will come across during the course of the sale or acquisition. One such legal document is an asset purchase agreement.

What Is An Asset Purchase Agreement?

An asset purchase agreement is an essential legal document that should be factored into every single business sale or acquisition. This is because it outlines in detail what assets are included in the sale or specifically excluded from the sale. Assets can include anything that is vital to the functioning of the business or is considered an asset. This includes furniture, property, office equipment, computer systems, technology, office supplies, services, contracts, contacts and indeed anything else that the business actually has at any given time.

It is important to have a legally binding asset purchase agreement in place because it protects both the buyer and the seller from legal proceedings at a later date. Having the best interests of both in mind, anything that is on the agreement must be transferred so the buyer is getting exactly what he or she wanted. On the other hand, anything that is not detailed on the asset purchase agreement is to be retained by the seller and thus cannot be claimed as part of the package by the new owner at a later date.

The Use Of An Asset Purchase Agreement

An asset purchase agreement is formulated at the same time as a bid is placed if a buyer is receptive to the bid but after a confidentiality agreement has been formulated. During the valuation stage, a comprehensive report will be produced as to the assets of the business and its overall worth in relation to them. The buyer and the seller will then negotiate as to what is to be included in the agreement. For example, the buyer may want certain technology included but the seller may want to take it with him or her. It is then up to the two parties to negotiate whether or not it is to be included and the terms that accompany it.

In fact, the asset purchase agreement is where many sales fall apart purely and simply because neither buyer nor seller will budge. However, if an agreement is reached then the final draft of the asset purchase agreement will be drawn up by the respective lawyers and signed by both parties. It will include conditions and provisions for indemnity as well as an actual list of all assets and their fates.

The final asset purchase agreement, when signed, will be held for a period of time to ensure that the relevant property and assets have changed hands. Depending on property law, this holding period can be as little as 12 days. It can run alongside the escrow agreement. Upon the transfer of all assets, the sale will be completed. Once it has completed, the seller cannot claim property back and the buyer cannot attempt to claim any assets that were not detailed in the agreement.