Suppose you are considering entering into an asset purchase agreement. In that case, you need to have a full understanding of the implications and ensure that this type of purchase is right for your circumstances. We explain what asset purchase agreements are and the potential benefits.
What is an Asset Purchase?
When a business is purchased, you can buy the company shares or just the assets. An asset purchase is when only the business’s assets are transferred and not any shares or the company itself.
With an asset purchase, the parties can agree on which assets will change hands. As well as physical assets such as machinery, stock and equipment, an asset purchase can include intangible assets such as intellectual property, for example the company name and branding, supplier and customer data and goodwill.
What is an Asset Sale?
As a business owner, an asset sale is the sale of the agreed-upon assets to a new owner who may want to continue the business or who may just want to purchase some assets to add to their enterprise. You can decide which assets you want to part with and you have the option of negotiating so that you retain some assets yourself.
What is an Asset Purchase Agreement?
An asset purchase agreement is a contract which sets out the details of an asset sale. It is negotiated between the parties and will be tailored to your circumstances and how you want the sale to take place. For example, you can deal with issues such as payment schedules, confidentiality and employee responsibilities.
It is essential to have an asset purchase agreement drafted and negotiated by an expert asset purchase solicitor, who will carry out due diligence work, ensure that the contract is in your best interests and provide you with advice on the implications before you sign.
Do I Need an Asset Purchase Agreement or a Share Purchase Agreement?
In a share purchase, the buyer will take on the business as a whole, which includes its assets and liabilities. This means that care needs to be taken to indemnify the buyer as far as possible in respect of issues such as debt recovery and legal action dating to before the completion of the sale.
It may not be possible to protect against all liabilities, and for this reason, extensive due diligence must be carried out before a share purchase takes place.
With an asset purchase, the buyer does not take on the company’s obligations.
What Assets Do You Buy in an Asset Purchase Agreement?
What assets you purchase can usually be negotiated, with prices agreed for various items. Alternatively, you may simply agree on a global price for all included assets.
Categories of assets that are commonly transferred in an asset purchase agreement include:
- The business name and branding
- Property and land
- Fixtures and fittings
- Machinery
- Stock
- Intellectual property, such as software, marketing materials and designs
- Creditors
- Customer and supplier lists
- Contracts and licences, although these may need to be renegotiated as they will not be binding on a purchaser
Are Employees Transferred on an Asset Purchase?
If the asset purchase involves the whole or part of a business where the business retains its identity following the purchase, then the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply. This means that employees will be automatically transferred to the buyer when the asset purchase is completed.
The buyer will generally need to adhere to the existing employment contracts and cannot dismiss an employee because of the transfer unless the dismissal is for a valid economic, technical or organisational reason.
Dealing with employees on the transfer of a business is not always straightforward, and you should take expert advice beforehand to avoid any difficulties. If you have any questions, our employment law solicitors can provide guidance.
Employees need to be given notice of the sale and confirmation of when it is completed, and their contracts are transferred to the new owner.
Who is Responsible for Drafting an Asset Purchase Agreement?
The buyer’s solicitor will generally draft the asset purchase agreement. It is common for solicitors for the buyer and seller to negotiate beforehand to agree on the terms and conditions.
Other supplementary documents can also be drafted as necessary, such as a non-disclosure agreement to keep the potential deal confidential and a letter of intent setting out the main points of the deal as agreed on at the outset, which will form the framework of the agreement.
Agreeing on the Terms and Conditions
There is commonly a period of discovery and negotiation during which solicitors for the seller and buyer will work to finalise the details. The buyer’s solicitor will carry out due diligence work on the assets, including looking at the details of legal titles, contracts, leases, employment contracts, asset valuations, creditor agreements and financial matters.
Once all required information has been supplied, prices can be agreed upon for the various assets or a global figure for all agreed-upon assets.
Key clauses in an asset purchase agreement include:
- Details of the parties
- Whether the assets are being transferred is an ongoing concern
- A list of the assets and any liabilities that are being transferred
- The amount to be paid
- A confidentiality clause
- How will payment be made, and any deadline for payment
- What will happen if scheduled payments are missed
- Any representations and warranties made by the seller
- Any restrictive covenants imposed on the buyer, such as non-compete and non-solicitation clauses
- How employees will be transferred
- How will data and other intellectual property be transferred
- How disputes will be dealt with
- The legal jurisdiction that will apply to the agreement
Completing an Asset Purchase Agreement
On completion of an asset purchase agreement, the buyer’s solicitor will arrange for the necessary registration of asset ownership, for example, registering the transfer of property at the HM Land Registry. They will also notify all interested parties, such as creditors and employees and ensure legal compliance with relevant legislation.
Contact our Company and Commercial Solicitors
If you are considering an asset sale or purchase, our expert company solicitors can provide robust advice and representation and draft a comprehensive asset transfer agreement. We have many years of experience in dealing with sales and acquisitions, and we will provide you with the information you need to make the right choices.
For more information on our services, see our corporate law page.
To speak to one of our experienced corporate solicitors, ring us on 0330 173 3980, email us at info@witansolicitors.co.uk or fill in our contact form and we will talk through your situation with you and discuss how we can assist.
