Asset Purchase Agreement (APA)

An Asset Purchase Agreement is a legal document that formalizes the purchase of assets, without any liabilities, from another business.

An asset purchase occurs when a buyer acquires all or part of a business's tangible or intangible assets.

The agreement outlines all the terms and conditions of the sale and purchase. The details it includes are commonly the following:

• Price
• Restrictions
• Warranties

Use our Asset Purchase Agreement Template to help you create the outline of your contract.

What Is a Capital Asset?

The IRS defines specific items as capital assets. These items include: 

• Real estate
• Domestic furnishings
• Stocks and bonds
• Personal belongings
• Jewelry
• Precious metals (gold, for example)

Trademarks and patents are examples of the types of items that are NOT capital assets. 

For certain transactions, an APA is necessary. These situations include: 

• Part of a larger business acquisition
• When buying a specific asset is not covered by different purchase agreements you made with the company
• Limiting the acquisition to business assets without including the actual business
• Acquiring specific assets (especially higher value)
• Joint ventures

If you find yourself in one of these situations, you will need to use an Asset Purchase Agreement.

How Does an APA Work?

Before being able to purchase assets, the buyer needs to send a letter of intent to the selling business. 

This will be the starting point of the deal, and then both businesses can begin to negotiate all the terms and conditions of the purchase. 

Using an APA has advantages and disadvantages. Before using the document, familiarize yourself with how it can help and how you can remedy any disadvantage.

Before taking part in a transaction, it is essential to understand the different elements of an Asset Purchase Agreement. 

Take a look at the different parts of an APA below that you can use as an Asset Purchase Agreement checklist that ensures you include every detail. 

• Personal details: This is the personal information of the buyer and seller, including names and addresses.
• Descriptions: Definitions of any words or phrases used repeatedly throughout the contract.
• Assets: The assets being bought
• Purchase amount: Amount the buyer is going to pay in the APA.
• Further agreements: Any extra agreements, also known as covenants, which are normal in an Asset Purchase Agreement. One example would be not competing for a certain period.
• Warranties: Warranties you are making with the other party. The selling party also needs to include their warranties to you.
• Consequences of contract: A list of contract violations, as well as the consequences of those contract violations.
• Closing requirements: What is required to finish the agreement.
• Signatures: Names and the date you and the other party are signing the contract.

To further clarify how to create your document, we have included the following steps. 

Review the following parts of an APA to write your document correctly. 

Personal Information

Include the date you are signing the contract in addition to the personal details of both you and the other party.

Physical Assets

State the tangible assets in the transaction, as well as how much they are worth. If there are no physical items being sold as part of the sale, then select “No Tangible Assets.”

Non-Physical Assets

Include the non-physical assets in the transaction, as well as how much they are worth. If no intangible items are being sold as part of the sale, then select “No Tangible Assets.”

Cost of Assets 

Include the amount the seller must receive to transfer ownership to the buyer. 

Deposit Details 

Insert a space that provides information about a deposit that must be given to complete the transaction. It should include the amount of the deposit. 

Also include an option of “Not Necessary” if no deposit is obligatory, and if it is refundable or not. 

Providing Payment

Fill in all the information regarding how the payment will be provided to the seller. It could be given at the closing or by financing, as well as the conditions that go with it.

Establish the interest rate, the term (period), and the due date (if being financed).

3rd Party Approval 

Include a section that makes a 3rd party’s approval necessary or not necessary to complete the transaction. 

Finalization of the Agreement 

Enter a space for the date and time of closing information. This marks the moment the transaction will be finalized. 

Closing Expenses 

Specify which parties, if not both, will pay for the closing costs of the agreement. 

State Law 

Fill in the name of the state where the agreement will be enforced. 

Extra Provisions 

Enter any extra terms, which are any specific agreements that you and the other party have made together. 

Signature Section

Enter the date you will sign the agreement. Also include your name and signature, as well as the name and signature of the other party. 

When considering buying assets, you might have heard about stock purchases.

If you are wondering what the differences between stock and Asset Purchase Agreements are, you can review the table below to understand how to tell them apart.

To help you write your document, you can have look at the example of an Asset Purchase Agreement that we have provided below. 

Review the sample below to understand how to outline your document correctly.

There are legal documents you can use during this situation or during a similar circumstance regarding a purchase.

It is beneficial to know where to find the correct information and legal tools.

We have added the following related finance templates that you may need right now or in the near future.  

• Direct Deposit
• Bill of Sale

Review these documents for more details regarding the legal processes of specific sales and payments.