What is an asset purchase agreement?

An asset purchase agreement (APA) is used when buying or selling a business to finalise the terms of buying a company's assets. A stock purchase agreement (SPA) is used when company shares are being bought and sold.

Where have you heard about asset purchase agreements?

You may have heard about these legal agreements if you follow news on company mergers and acquisitions.

What you need to know about asset purchase agreements.

When considering a merger or acquistion, APAs have a clear set of advantages and disadvantages when compared to using an equity (or stock) purchase agreement or a merger agreement. In such a situation, the buyer is guaranteed to receive all of the seller's assets, but also assumes all of the seller's liabilities.

Asset purchase agreements establish that the seller has the right to sell its assets and that the buyer has the right to buy them, as well as detailed conditions of the sale. These agreements set out:

• the business assets that are to be sold – these don't necessarily encompass all the assets belonging to a business, and can include both tangible and intangible assets
• details of the purchaser and seller
• the terms of the sale
• purchase prices
• covenants
• indemnification
• dates for closing the deal.