An asset purchase agreement is a contract. There may be numerous terms finalized in an asset purchase agreement. Selling a business is detailed and time-consuming endeavor. Certain asset transfers such as the transfer of intellectual property rights or real property can make a purchase agreement more complicated.
There are two issues which must be considered upfront:
In an asset sale, only the tangible or intangible assets of the business are transferred to the new owner. The legal ownership of the actual business entity is not transferred. Asset purchase agreements are needed even in the event that only some of a business’ assets are being sold. A buyer may purchase the majority of the seller’s assets such as equipment, fixtures, leaseholds, trade names, accounts receivable, and client lists, for example. The seller may retain ownership of the actual business entity as well as the long-term obligations of the company. If you desire to sell assets in order to keep your company doors open, it’s often practical to sell fixed assets if they have no further value to the company. For example, a manufacturer may sell a piece of product equipment that is no longer needed for production. The equipment’s value to the company has decreased, but it has value as a sale item.
Asset sales tend to generate higher taxes for the seller as intangible assets are taxed at capital gains rates. “Hard” assets can be subject to higher ordinary income taxes. Conversely, a buyer tends to favor an asset sale. They are able to allocate values for assets based on their depreciation so they can gain additional tax benefits.
Although asset sales allow the buyer to bypass liabilities, certain assets can be difficult to transfer. These assets can include: intellectual property, government or corporate contracts, some leases, and permits. This is due to issues of legal ownership, assignability, and third-party consents. An asset sale might not necessarily include the name of the business, which can mean that the seller’s name-brand value would not be obtained by the buyer. It is important to have expert guidance in these scenarios and for the seller and buyer to decide precisely the type of assets they are seeking to sell or acquire.
It’s common for an asset purchase agreement to be signed without the sale being closed. The closing actually occurs after due diligence has been completed. In this scenario, the asset purchase agreement would include provisions regarding the seller’s operation of the business prior to closing on the sale.
If you are pursuing an asset sale, it’s important that due diligence is completed. A Raich attorney experienced in corporate sales and asset sale transactions can review your needs and identify the best approach to divesting yourself of assets. We can also advise you regarding the legal ramifications of each type of asset sale. If you are purchasing assets from a corporation, your Raich attorney will be able to offer guidance on the many terms and conditions that may be involved in an asset purchase agreement. This helps ensure that your business will not enter into any potentially detrimental agreements. We will negotiate for the most profitable transfer while taking measures to protect you from any liability that could possibly be inherited in the sale.
For more information on asset purchase agreements, please contact Raich Law at 702-758-4240 or click here to contact us.