Chicago Asset purchase agreement lawyer
illinois M&a Lawyer
When it comes to buying a business, having a strong asset purchase agreement is incredibly important. It’s not just about finalizing the sale, but also about safeguarding your interests as the seller. A well-crafted agreement can help you avoid future headaches and ensure a smooth transaction.
Motiva Business Law’s M&A attorneys will help you write APAs that minimize the risks of the transaction and protect your investment.
Motiva Business Law Offers
- Asset Purchase Agreements
- Stock Purchase Agreements
- Letter of Intent
- Due diligence
- Guidance throughout the acquisition
What is an asset purchase agreement?
During a business acquisition, an asset purchase agreement is a contract that specifies the terms under which selected assets of a business will be transferred.
An asset purchase agreement, or APA, can include both tangible and intangible assets, such as equipment, inventory, real estate, intellectual property, and customer database.
With an APA, the buyer of a business can cherrypick the desired items of a transaction and limit the liabilities that are inherent to the transaction.
When should I use an asset purchase agreement?
APAs are typically used when buying an entire business, but they can also be used when in need of purchasing specific assets of a company or in joint venture situations.
Typically, this is the contract buyers in small business purchases, when they are interested in acquiring only specific assets, or when an asset purchase is more favorable than a stock purchase.
What can you buy with an asset purchase agreement?
An APA can be used to purchase:
- An entire business
- Intellectual property, such as trademarks, patents, and copyrights
- Equipment
- Real Estate
- Employees
- Inventory
- Contracts
- Licenses
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How does an asset purchase work?
An asset purchase typically involves the following steps:
- Initial discussions: During this stage, the prospective buyer of a company will discuss the overall details of the business purchase
- Letter of intent: Preferably written by the buyer’s attorney, the LOI is a non-binding document that defines preliminary terms of the transaction, such as whether it will be an asset sale or stock sale, which assets are going to be involved, the tentative purchase price, and confidentiality and no shop provisions.
- Due diligence: The buyer’s attorney will review the financial, legal, and corporate documents of the target company to understand its condition and identify any underlying risks.
- Business valuation: Based on the findings from due diligence, the business is appraised by an accountant.
- Asset purchase agreement: The parties negotiate the terms of the asset agreement, including the final purchase price, financing, assumption of liabilities, representations and warranties, and indemnifications.
- Closing: The parties complete the transaction and prepare post-merger integrations
What does an asset purchase agreement include?
The APA will identify a list of the assets that are included in the sale and the terms and conditions for the sale. You can typically find the following elements in an asset purchase agreement:
- Identifying details: The contract will specify the personal information of the parties that are part of the transaction.
- Definitions: This section includes the meaning of any recurring phrases or words that are used throughout the contract.
- Assets: Provides an exhaustive list of the items that are included in the transaction and also identifies those that are excluded from the sale. The contract typically includes it in an attached appendix.
- Purchase price: Defines the final price of the assets and how the payment will be provided to the seller. If the transaction includes seller financing, the APA will define the terms of the funding, such as the period, interest rates, and due date.
- Representations and Warranties: Also known as reps and warranties, these provisions serve as promises to help the buyer understand the state of the business they are acquiring.
- Covenants: Additional agreements regarding certain actions or restrictions for the buyer and the seller before or after closing the transaction, such as Non-compete Agreements.
- Indemnification: If any of the reps and warranties turn out to be untrue, the indemnification provisions will determine how the parties are entitled to compensation.
- Breach of contract provisions: The contract defines what actions would constitute a violation of the terms and the effect of such breach.
- Dispute resolution: To avoid the need for litigation, the contract will dictate a procedure to follow to resolve the differences between the parties.
- Ancillary contracts: The APA specifies what other contracts will need to be signed to complete the transaction, such as an Assumption Agreement.
- State law: Defines the jurisdiction under which the agreement will be enforced.
- Signatures: Names of the parties and the date on which the asset agreement is signed.
Whas is the difference between an asset purchase agreement and a stock purchase agreement?
With an asset purchase agreement, the buyer will acquire specific assets and liabilities of a business while discarding unwanted liabilities or obligations. On the other side, with a stock purchase agreement, a buyer will directly acquire ownership of the business, including its assets and liabilities.
Generally, an asset purchase has tax advantages for the buyer and also protects them from unwanted liabilities. On the other side, the seller will typically prefer to structure the deal as a stock sale to minimize their tax and legal obligations.
There is no rule of thumb with transaction structures. Before deciding whether to structure your acquisition as an asset sale or a stock sale, get the professional advice of a business attorney who will choose the best method for your transaction according to your current situation and professional goals.
Pros and Cons of an Asset Sale
An asset sale has different advantages for both buyers and sellers. Here are some considerations to have in mind before entering an APA:
Advantages
- Reduced liability: With an asset purchase agreement, you will be able to limit the potential risks of the transaction associated with unknown liabilities.
- Easier process: When deciding to acquire only specific assets, the due diligence process can be shorter, as it focuses only on the assets being purchased. Similarly, the business valuation is simpler.
- Tax advantages: The cost of assets is valued at market value at the time, which brings tax advantages to the buyer.
Disadvantages
- Renegotiate contracts: Leases or other contracts are not automatically assigned, so buyers may need to renegotiate with the landlord or other parties.
- Rehire employees: The workforce isn’t automatically rolled over unless the employees are rehired.
- Need to apply for licenses: You may need to do the application process for licenses and permits.
Who Writes an Asset Purchase Agreement?
Preferably, the buyer’s attorney should draft and negotiate the asset purchase agreement. Involved in the transaction from the beginning, the attorney will use the information that was gathered during due diligence to write an APA that minimizes the risks of the purchase for the buyer.
Motiva Business Law’s M&A Attorneys Guide your Transaction
Motiva Business Law’s experienced M&A attorneys provide invaluable guidance to business buyers navigating asset purchase agreements, ensuring smooth and secure transactions.
From writing the letter of intent, conducting due diligence, and writing the asset purchase agreement, our business acquisition attorneys will guide your transactions, ensuring you make the right decisions at each step of the M&A process.
With a deep understanding of the complexities involved, our lawyers meticulously review and negotiate the terms of the agreements, safeguarding the interests of our clients. By offering strategic advice and leveraging their expertise, we help buyers identify and address potential risks, ultimately facilitating successful and legally sound acquisitions.
Schedule your consultation at (630) 517-5529
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Asset Purchase Agreements FAQ
While an asset sale involves the acquisition of specific assets, a stock sale comprises transferring ownership of an entire business entity, including its liabilities and obligations.
Asset purchase agreements are used as part of a business acquisition or when buying an entire business. They can also be found in other transactions, such as joint ventures.
Yes, you will still to need pay taxes, but with an asset business purchase you can have better tax advantages as a buyer.