An asset purchase agreement is a legal contract that outlines the provisions of acquiring all or part of the assets of another company. This type of agreement can encompass which assets are being acquired, the compensation that will be made for such assets, the date of when the assets have been acquired, the parties involved in the acquisition, the liabilities that will be attached, and any other provisions attached to the assets at the time of transfer.
The two most commonly used formats of the asset purchase agreement are the basic and descriptive type forms.The basic form is commonly used when you are looking at acquiring the entire business and all of its assets. The descriptive form is used when you only want to acquire some of the assets being sold.
The basic form does not require you to specifically outline which assets will be included in the sale because it will encompass all the assets associated with the firm once it is implemented. It requires minimal information and is condensed in its nature. The descriptive form does require you to outline the specific assets being acquired, because you are only buying some of the assets being sold. This format requires vast amounts of information regarding the assets and is very descriptive.
The main advantage of an asset purchase agreement is that the buyer can set specific terms that the seller must abide by or agree to in order for the transaction to take place. The basic form allows the seller and buyer to come to a legal agreement on the specific business, assets associated with the business, compensation/loan terms, liability free guarantees, competitive clauses and the terms set forth for the closing of the deal. The descriptive form allows the buyer and seller to accurately describe the assets being acquired, the condition of the assets and what liabilities/debts are attached to said assets. It also allows the buyer and seller to outline and agree to specific provisions regarding such assets.
One major disadvantage of an asset purchase agreement is the limitations of its formats. The basic format does not separate the assets specifically, so it is harder to obtain a clear picture of what is actually being acquired at the time of closing. Because this type of format does not support listing assets separately, a schedule A form must be used to list the specific assets and must be attached for this agreement to be legal. This can lead to extra filing and legal fees just to close the transaction.The descriptive form allows you to list each asset specifically, but is not the appropriate legal form to use when acquiring all the assets of a business. It can only be used when you are looking at buying part of the assets that are being sold.
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