What Is An Asset Purchase Agreement & Why It Is Important
An agreement is legally binding between two or more parties to a course of action. Normally an agreement is made when transferring the ownership or exchanging of something such as goods or services.
What Is An Asset Purchase Agreement
A purchase agreement is something that enables a business to purchase an asset from another business or acquire a whole business through documentation.
The purchase agreement shows the terms and conditions for acquiring an asset or a whole business in the form of a contractual agreement.
This agreement enables a buyer a seller to exchange the property like business assets or real estate property either for themselves or for the purpose of merger acquisition. This agreement includes all the details related to the purchase of an asset or a business such as the price of the asset, warranties, terms, and conditions for ownership and delivery, breach of contract, etc.
Purpose Of Asset Purchase Agreement
The main reason for an asset purchase agreement is to acquire an asset or a whole business legally and know about the liabilities that a business can face with the acquisition of an asset or a business.
An asset purchase agreement is normally done when purchasing:
- Equipment
- Machine
- Intellectual Property
- License
- Patents
- Trademark
- Copyrights
- Real Estate Property
- A whole business, etc.
An asset purchase agreement is needed:
- When a party is going to acquire a large business
- When acquiring an asset that has a higher value than normal assets
- When a company allows to acquire limited assets
- When a business is acquired by another business, etc.
Important Elements Of An Asset Purchase Agreement
There are many elements that are necessary to mention in an agreement when purchasing an asset or a whole business. The followings are the essential elements that should be included in a purchase agreement.
- An asset purchase agreement must show the parties’ information such as the name of the buyer and seller, personal information, address, and other contact details.
- Name and details of the third party if involved in the contract or deal
- All necessary details for the party that is going to purchase an asset
- Name the asset or a business that is going to be purchased
- Terms and conditions of the agreement
- Purchase price of an asset or assets or a whole business
- Warranties and disclaimers should be mentioned in the agreement as it is critical to deal with as time passes
- Prohibited activities during the agreement
- Terms and conditions in case of a branch of contract
- Requirements for closing an agreement such as repair of an asset, sale approval by the third parties, and when exchanging prices will be changed
- Termination or modification clauses
- A signature section is essential for a purchase agreement, without a signature an agreement cannot be enforceable.
Assets That Can Be Bought By A Purchase Agreement
The followings are some of the most popular examples of assets that can be included in the asset purchase agreement:
- Brand name of the business
- A single business contract
- An entire business
- Creditors of a business
- Confidential or secret information
- Debtors of a business
- Financial assets
- Digital assets, etc.
Importance Of An Asset Purchase Agreement
The following are the major reasons why an asset purchase agreement is necessary.
- The purchase agreement provides all the necessary details for an asset to be purchased
- It provides the details of the purchase price and payment terms and conditions
- The agreement shows the legal ownership of an asset
- The purchase agreement specifies the obligations if there is
- The purchase agreement contains a provision that protects the buyer’s rights to use the asset
- The agreement helps a buyer to protect sensitive information during the transaction
- An asset purchase agreement is a legally binding contract that protects the ownership and serves as evidence of the legal ownership, etc.
FAQs
Can a seller back out of an asset purchase agreement?
If a buyer did not meet the requirement or deadline of an agreement, the seller can back out of an asset purchase agreement.
Is an asset purchase agreement legally binding?
Yes, it is a legally binding contract that is done between two or more parties.
Why do I need an asset purchase agreement?
An asset purchase agreement is necessary to show the legal ownership of a property.
Who prepares the asset purchase agreement?
An asset purchase agreement is made by the buyer’s attorney and sent to the seller’s attorney for checking.