Glossary term
Asset Purchase Agreement
An asset purchase agreement is a contract in which a buyer purchases specified assets of a business rather than buying the entire legal entity.
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What Is an Asset Purchase Agreement?
An asset purchase agreement, or APA, is a contract under which a buyer purchases specific assets from a seller. In a business sale, an APA can transfer assets such as equipment, inventory, customer contracts, intellectual property, licenses, receivables, or goodwill.
An asset purchase is different from a stock purchase or equity purchase. In an asset purchase, the buyer chooses the assets and liabilities it is taking on, subject to the agreement and applicable law. That selection is one reason APAs are common in small business and middle-market transactions.
Key Takeaways
- An asset purchase agreement transfers specified assets from seller to buyer.
- It can also assign selected liabilities, contracts, permits, and obligations.
- The agreement usually includes purchase price, closing conditions, representations, warranties, and indemnification provisions.
- Tax treatment, consent requirements, and liability allocation can be central to the deal.
How an APA Works
The agreement identifies what is being sold, what is excluded, how the purchase price is paid, and what must happen before closing. It may also address employee matters, leases, customer contracts, non-compete restrictions, transition services, and post-closing adjustments.
Representations and warranties are especially important. They are statements about the business, assets, authority, taxes, contracts, litigation, and other matters. If those statements are inaccurate, the buyer may have contractual remedies depending on the indemnification terms.
Asset Purchase vs. Equity Purchase
Structure | What the buyer acquires | Common focus |
|---|---|---|
Asset purchase | Specified assets and selected liabilities | Asset list, assignments, taxes, and liability allocation |
Stock or equity purchase | Ownership interests in the entity | Entity-level liabilities, ownership transfer, and control |
Merger | Entity combination under merger law | Corporate approvals, successor liability, and integration |
Financial Terms to Watch
The purchase price is only one part of an APA. Working capital adjustments, escrow amounts, earnouts, assumed liabilities, excluded liabilities, tax allocation, and indemnity caps can all change the real economics of the deal.
The Bottom Line
An asset purchase agreement is the transaction document for buying specific business assets. It matters because the contract defines what is transferred, what is left behind, who bears which liabilities, and how the purchase price is protected after closing.