If you are negotiating an asset purchase agreement for the purchase or sale of a business, one of the most important issues is identifying exactly what assets are included in the transaction. Clearly identifying the purchased assets—and any assets that are excluded—can help avoid confusion and disputes after closing.
At Assent Law, our Nevada business purchase agreement lawyers can help you understand what business assets you need to include in a purchase agreement and why this is important. So, keep reading to find out what a business purchase agreement is and why detailed asset descriptions matter.
What Is an Asset Purchase Agreement?
Before we discuss what assets you should include in a business purchase agreement, what exactly is a business purchase agreement? This agreement acts as a legally binding contract between a buyer and a seller, outlining the terms and conditions for transferring ownership of certain assets of the business.
An asset purchase agreement typically identifies the assets being purchased, the purchase price and payment terms, the parties’ respective obligations before and after closing, and any liabilities the buyer will assume. It also addresses other important terms of the transaction, including representations and warranties, closing conditions, and the parties’ rights if something goes wrong.
An asset purchase is different from a stock or membership interest purchase. In an asset purchase, the buyer purchases specified assets of the business rather than an ownership interest in the entity that owns them. The seller generally continues to own the existing business entity, although the entity may be dissolved after closing if substantially all of its assets are sold and it will no longer conduct business. The buyer acquires only the assets and liabilities identified in the purchase agreement. In contrast, in an equity purchase, the buyer acquires an ownership interest in the business entity itself. As a result, the buyer steps into the shoes of an owner of the existing business entity, which continues to own its assets and remain responsible for its liabilities.
Assets Commonly Included in a Business Purchase Agreement
The assets included in a business sale will depend on the nature of the business and the terms negotiated by the buyer and seller. Whenever possible, the parties should identify the principal assets to be purchased early in the transaction, including in a letter of intent. Doing so can help ensure that the parties have the same understanding of what is being sold before they begin negotiating the purchase agreement.
The purchase agreement should then clearly define the assets being transferred and, where appropriate, identify them on schedules attached to the agreement. For example, equipment, inventory, contracts, intellectual property, and other significant assets may be separately listed or described on schedules.
Although every transaction is different, the assets purchased in a business sale generally include some combination of tangible and intangible assets.
Tangible Assets
Tangible assets are the physical assets of a business that may be included in the sale. Depending on the type of business, these assets may include:
- Operational equipment
- Manufacturing tools and machinery
- Inventory and business products
- Raw materials and supplies
- Office furniture
- Fixtures
- Vehicles
Intangible Assets
Intangible assets are non-physical assets that may have significant value to the operation of a business. Because these assets are not always as readily identifiable as tangible assets, they can sometimes be overlooked when the parties are determining what will be included in the sale.
Depending on the business, intangible assets may include:
- Trade names
- Logos and branding materials
- Trademarks and copyrights
- Proprietary business materials
- Vendor agreements and service contracts
- Rights under leases
- Customer lists and relationships
- Business reputation and goodwill
- Websites and domain names
- Social media accounts
- Online business profiles
Assets That May Be Excluded
Just as important as identifying the assets being purchased is identifying the assets that will remain with the seller. These “excluded assets” should be clearly addressed in the purchase agreement so there is no uncertainty about what the buyer will—and will not—receive at closing.
Cash and accounts receivable are often important negotiation points. In many asset sales, the seller retains the cash generated by the business before closing. The parties must also decide who will be entitled to collect accounts receivable for goods or services provided before closing. Depending on the transaction, the seller may retain those receivables, the buyer may acquire them as part of the purchased assets, or the parties may agree on another arrangement.
Other excluded assets may include:
- Tax refunds attributable to periods before closing
- Insurance policies and certain insurance proceeds
- Certain contracts or other assets that the buyer does not want to acquire
- Personal property of the business owners
- Real estate, if the transaction does not include the business premises
Addressing excluded assets should not be left until the purchase agreement is being drafted. The parties should discuss significant excluded assets—particularly cash and accounts receivable—when negotiating the letter of intent so that they have a common understanding of the transaction before drafting begins. Resolving these issues early can help avoid disagreements later over who is entitled to cash, receivables, refunds, and other property after closing.
Why Work With an Attorney When Buying or Selling a Business?
Identifying the assets being purchased is only one part of preparing an asset purchase agreement. The agreement also addresses the purchase price and payment terms, assumed liabilities, representations and warranties, closing conditions, indemnification obligations, and other rights and responsibilities of the buyer and seller.
An attorney can also help ensure that the purchase agreement accurately reflects the business terms negotiated by the parties and that the assets being purchased are properly identified and transferred. Depending on the assets involved, additional documents may be required at closing, such as a bill of sale, assignment of contracts, intellectual property assignments, or other transfer documents.
Working with an experienced business attorney early in the transaction can also help identify issues before the parties have committed significant time and expense to negotiating the purchase agreement. At Assent Law, we assist Nevada businesses with preparing and reviewing asset purchase agreements for a transparent flat fee.
FAQ Section
Should cash and accounts receivable be included in an asset purchase?
It depends on the terms negotiated by the buyer and seller. Cash is often retained by the seller, while accounts receivable may be retained by the seller or transferred to the buyer. Because these items can materially affect the economics of the transaction, the parties should address them early in the negotiations and clearly document their agreement.
Does an asset purchase include the seller’s liabilities?
Generally, no. One reason buyers often structure a transaction as an asset purchase is to acquire selected assets without assuming all of the seller’s liabilities.
However, a buyer may agree to assume certain liabilities or obligations, such as those arising under contracts that the buyer needs to continue operating the business. The purchase agreement should clearly identify any liabilities the buyer is assuming and those that will remain with the seller.
Do contracts and leases automatically transfer to the buyer?
No. If a contract or lease is being transferred as part of the transaction, the parties will generally sign a separate assignment at closing, which is often attached to the purchase agreement as an exhibit. In addition, some contracts and leases restrict assignment or require the consent of the other contracting party or landlord, so the parties should determine before closing whether any required consents must be obtained.
How are business assets transferred at closing?
The asset purchase agreement establishes the terms of the transaction, but additional documents may be used to transfer particular assets at closing. These may include a bill of sale, assignments of contracts or leases, intellectual property assignments, and other documents depending on the assets being purchased.
Should the assets being purchased be identified in the letter of intent?
The principal assets being purchased should generally be addressed in the letter of intent. Identifying significant purchased and excluded assets early can help ensure that the buyer and seller have the same understanding of the transaction before they begin negotiating the purchase agreement.
Contact a Nevada Business Lawyer Today at Assent Law
An asset purchase agreement establishes the terms governing the purchase and sale of a business’s assets and is one of the most important documents in an asset sale. Clearly identifying the assets being purchased, the assets the seller will retain, and any liabilities the buyer will assume helps ensure that the agreement accurately reflects the transaction negotiated by the parties.
At Assent Law, we help Nevada business owners prepare and review asset purchase agreements and related closing documents. Our flat-fee legal services provide upfront pricing so you know the cost of your legal work before we get started. Call 702-291-8796 to learn more about how we can assist with the purchase or sale of a Nevada business.
