What to expect in an asset purchase agreement
When the assets of a company are bought or sold, the details of the arrangement are set out in an asset purchase agreement.
Investment in a business can be made by way of an asset purchase or a share purchase. In choosing to purchase assets, the buyer can specify exactly what they wish to buy and can opt not to take on assets or liabilities which are less attractive to them. This is in contrast to a share purchase agreement, where liabilities such as debts, legal disputes and unfavourable leases may also be transferred to the buyer.
Below are some of the main factors for consideration when agreeing to purchase business assets.
Details of assets and payment
The agreement will clearly list the assets that are being sold. As well as the price, payment details should also be included, such as agreed instalments, the dates on which these are to be made and any other related provisions.
Existing contracts and liabilities
Contracts and liabilities that are already in existence at the time of an asset purchase are not automatically transferred to the buyer. An exception to this is the case of employees, otherwise, if contracts or liabilities are to be transferred, they must specifically be mentioned in the agreement.
If a contract is to be included, then it will be necessary for the parties to the contract to agree to this.
Warranties and limitations
Where the seller is including warranties in respect of the assets sold they must ensure that the information is accurate.
The buyer may be limited under the sale agreement as to what claims they can bring against the seller following completion. This could include a maximum possible claim amount, a restriction on small claims, so that only larger claims may be made and a time limit for commencing claims.
Existing employees
If a business is sold, then existing employees are usually transferred automatically to the new owner under the terms of the Transfer of Undertakings (Protection of Employment) Regulations, or TUPE. Their existing rights and conditions of employment will remain the same, so the buyer should make sure they are aware of the contents of all employment contracts before going ahead with the purchase of a business.
With regard to the length of employment for an employee, this will be calculated from the start of their employment with the original owner and not from the date of the purchase by the new owner.
Liabilities relating to employees are also automatically transferred under the TUPE Regulations, including disputes and unpaid wages, so a potential buyer should raise relevant enquiries before completion of the purchase to ensure that they are aware of the full extent of the liabilities they are taking on.
Having an asset purchase agreement drafted
An asset purchase agreement is a complex legal document that should protect both the seller and buyer in a transaction. Due diligence enquiries should always be fully carried out beforehand and all questions answered satisfactorily before going ahead.
Liabilities for both seller and buyer can be onerous, so it is essential to ensure you are fully aware of the extent of these and that they are clearly set out in the agreement. It is always recommended that advice is sought from an expert company and commercial solicitor before any agreement is entered into.
Contact us
At RSW Law we are experienced in the drawing up of asset purchase agreements and advising on the risks and liabilities attached. Our advice is practical and we always focus on our clients’ business interests and success. Our lawyers work in many areas, including financial services, retail, leisure, property and professional services.
If you would like to speak to one of our expert solicitors, ring us on 020 3146 2989, email us at info@rswlawltd.co.uk or fill in our contact form.
The legal content provided by RSW Law Limited is for information purposes only and should not be relied on in any specific case without legal or other professional advice.
Copyright is owned by RSW Law Limited and all rights in such copyright are reserved. Material is not to be reproduced in whole or in part without prior written consent.