What are Asset Purchase Agreements?

Malcolm Tatum
Malcolm Tatum

Asset purchase agreements are contracts that act as the basis for the sale of the assets owned by one company to another company. The assets involved may be physical property or involve stocks, bonds, and other holdings that are currently in the possession of the selling entity. Agreements of this type are often utilized when a business is acquiring another company, with an eye toward merging the two operations into one working entity.

Asset purchase agreements are usually utilized when a business acquires another company.
Asset purchase agreements are usually utilized when a business acquires another company.

The scope of assets that may be included in different types of asset purchase agreements is extremely broad. Machinery used in a production process would usually be sold using this kind of agreement. In like manner, buildings and other types of real estate holdings would also be sold using an asset purchase contract. Even office supplies, office furniture, and decorative elements such as wall art, plants, or area carpets used in reception areas may be named as assets that are being transferred to new ownership via this type of agreement.

Typically, any liabilities connected with the holdings named in asset purchase agreements are also transferred to the new owners as part of the transaction. For example, if an office copy machine is one of the assets named in the contract and there is an outstanding balance due on the machine, the new owner will assume responsibility for that debt as part of the transaction.

Using asset purchase agreements often helps to incrementally transfer the assets of a business to a new owner in a merger or a buyout situation. As part of the contract terms, a price may be set for each item named in the contract, or a flat price for the entire lot named in the agreement may suffice. By specifically identifying the holdings that are being sold using the agreement, there is considerably less opportunity for any confusion to arise regarding who still owns what once the deal is completed.

There is some difference of opinion on whether ownership of assets like stocks and bonds may be transferred through the use of asset purchase agreements. In some settings, the use of a contract that is more limited in scope may be preferable. When this is the case, physical assets are sold using asset purchase agreements while investment holdings like stocks or bonds are transferred using one or more stock purchase agreements. In some cases, trade laws that are in force in the local jurisdiction will play a role in deciding which type of agreement would be the more practical choice for the sale.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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