What is an asset purchase agreement?

An asset purchase agreement is an agreement between a buyer and a seller to purchase property, like business assets or real property, either on their own or as part of a merger-acquisition. The agreement describes the assets that will be purchased, including important details like price, warranties, and breach of contract provisions.

With contract management software, your company is able to manage these complex agreements effectively. You can streamline your system to save time, money, and other resources. An asset purchase agreement can be standardized for future use while permitting easy modifications for future deals, and you’ll have tools to better manage these contracts and improve your business deals moving forward.

An asset purchase agreement is a legal contract to buy the assets of a business. It can also be used to purchase specific assets from a business, especially if they are significant in value.

Asset purchase agreements are very common in business purchase situations. If a company wants to buy another business, they will utilize an asset purchase agreement to memorialize the terms and conditions of the asset purchases. This document is common in mergers and acquisitions to outline what assets are purchased in addition to purchasing a business.

Another common situation is where a buyer only wants the assets, but not the entire business, if the buyer does not want to assume the liabilities, employees, and other financial responsibilities. The agreements are highly modifiable to fit the unique asset purchase the business wants to undertake.

Asset purchase agreements exist to lay out the details of an asset purchase. Every deal is unique and the specific terms of the contract must be put in writing — the agreement may not be enforceable otherwise. It lets your business get exactly the assets it wants without purchasing anything it does not. It also helps a business limit the potential liabilities it could face.

For example, asset purchase agreements are commonly used to purchase:

• Intellectual property
• Equipment
• Machinery
• Businesses
• Licenses
• Properties

Certain situations require the use of an asset purchase agreement. These include, but are not limited to:

• As part of a larger business purchase
• To limit the purchase to business assets but not the business itself
• To purchase specific assets (especially those of higher value)
• In joint venture situations
• When a specific asset purchase is not covered by other purchase contracts you have with a company

An asset purchase agreement should include several important provisions. What is included in your contract will differ based on your circumstances, but a starting agreement should include:

Party information

The opening section of an asset purchase contract should include the names and contact information for both buyer and seller, as well as the names of business officers or agents who will sign the agreement.

Definitions

The agreement should define any important or unique terms of the agreement. This is especially true when you’re purchasing specific assets, but not all of them. You can also use this section to abbreviate long words or phrases that are repeated in the agreement.

Purchased assets

The asset purchase agreement should specify the specific assets the buyer is purchasing. Often, the contract itself specifies types of assets and outlines the individual items in an attached appendix.

Purchase price

The agreement must state the price you will pay. The contract must be clear and unambiguous as to what price is required for the purchase.

Additional covenants

Covenants are additional agreements within the asset purchase agreement. Additional agreements are common, such as agreements not to compete for a certain period of time or the requirement that the parties take all efforts necessary to transfer licensure and ownership to property.

Warranties or disclaimers

The contract should also include any warranties the seller or buyer are making to one another. These guarantees and warranties are critical to a deal and can have significant ramifications for a business deal as time goes on. This section may also disclaim typical warranties if permitted under state law.

Indemnification

Indemnification provides protections for the parties in case of breach by the other. It states that the breaching party shall indemnify or compensate the non-breaching party to make them whole.

Breach of contract provisions

The asset purchase agreement must specify what constitutes a breach of the contract and the potential effect of a breach. This might include a liquidated damages clause, forum selection clause, choice of law provision, and much more.

Requirements of closing

The requirements to effectuate the closing of the agreement vary based on the circumstances and the assets purchased. This section will include unique requirements that must occur before closing. These could include:

• Repairs or modifications to property before sale
• Approval of the sale by third parties
• Whether closing price changes will occur, and what would trigger those changes

Signature section

The contract should contain a signature section where all parties sign and date the agreement. Absent these signatures, the contract may not be enforceable. In business transactions, it is especially important to identify the name of the signatories, as well as their official title if signing on behalf of a business. Failure to include the officer title could result in individual liability for signatories you never intended.

An asset purchase agreement is a detailed document that often requires significant negotiation. With older negotiation methods like back-and-forth emails, this negotiation process can be time-consuming and filled with errors. Errors in these contracts can have unfavorable results and may even lead to litigation.

An asset purchase agreement will also have to handle the unique challenges involved with transferring assets that require licensure or are subject to third-party contracts.

You are able to create an effective asset purchase agreement utilizing digital contracting software. This software lets you create template agreements that give you a starting point from which to negotiate. It contains the boilerplate and formatting you want in most asset purchases, which means you don’t have to start from scratch each time.

The software enables you to make real-time edits to the agreement, saving you the frustration of emailing copies back and forth and losing track of different versions. You can even redline the agreement with your counterparty on the same platform. The software can track changes and provide detailed metrics to help you improve your processes.

Businesses that manage asset purchase agreements often find them difficult to keep track of. They need to track important details like asset price lists, purchase details, costs, and the version of the contract. There’s a significant amount of data in these agreements, and it can be almost impossible to manage without sophisticated technology. Ironclad’s contract management system offers you detailed contract data reporting that educates and informs your business decisions.

Too often, asset purchase agreements are stored in separate systems that don’t talk with one another, which makes it difficult to find and track key details. There’s no transparency in the process, and it wastes valuable time.

The software also gives you access to the Contract Data Repository. It can store information such as, but not limited to:

• Total asset cost
• Workflow suggestions
• Template and automation suggestions
• Party details
• Asset lists
• Start and end dates for the contract
• Terms and conditions
• Appendix and exhibit management

Why asset purchase agreements can be time-consuming and hard to keep track of

Asset purchase agreement often require significant modification in certain areas, but they could just as likely be boilerplate. Many companies still negotiate their asset purchase agreements in back and forth emails, instead of a single platform. This takes a considerable amount of time and effort, and it can be streamlined with the right software.

Automating workflows for asset purchase agreements

With the Ironclad Workflow Designer, you can automate many of the functions of your asset purchase agreements. This includes creating fillable fields for parties, prices, and much more. The software can then track and record these important data metrics for future use. Automated systems can also provide you reminders for important dates in the contract, such as the date of closing. Automation can allow you to streamline your contracting processes by 80% or more.

Ironclad gives you the software needed to manage asset purchase agreements. You can use customized tools that help you create, modify, and track these purchase contracts:

• Workflow Designer tool
• Ironclad Editor
• Artificial intelligence
• Clickwrap agreements
• Integration with Salesforce, DocuSign, and other partners

Asset purchase agreements help you grow your business and get what you need to run it profitably. They help protect you from liability and outline the details of the transaction to protect both buyer and seller. You can effectively manage your asset purchase agreements to streamline your business and save money.