Asset Purchase Agreement
San Diego Acquisitions Attorneys
There are two primary vehicles for acquiring part or all of a competitor or existing business: an “Asset Purchase” and a “Stock Purchase.” The Asset Purchase Agreement allows you to purchase specific assets of a business, without accepting any of the associated liabilities or debts of that company. For example, a competitor may be cutting back business operations, and you have an opportunity to either purchase the whole company or simply a fleet of vehicles or real estate. An asset purchase provides for the transfer of assets such a fleet of trucks, or a manufacturing equipment without exposing your business to the debts and contingent liabilities of another company. You may agree to accept a specific loan or obligation associated with a specific asset as part of the purchase agreement, but your exposure is limited to that quantifiable debt, instead of the general form of contingent liability one assumes in a stock purchase.
Asset purchase agreements allow for the purchase of goods, inventory, vehicles, real estate, facilities, machinery, customers, and even the “goodwill” of another company. An asset purchase can be structured for specific tangible property, or for every physical asset of a company. The seller usually retains ownership of the business itself, all cash-on-hand, as well as the debts and obligations of the company.
Advantages of an Asset Purchase Agreement
The primary advantage of an asset purchase is the ability to acquire a specific asset or group of assets, without assuming any debt or contingent liability. The structure of the transaction itself can have an impact on the tax benefits associated with an asset purchase, and the tax attorneys at Allen Barron assist and inform many of the technical aspects of the asset purchase agreement. Generally speaking, restructuring the “basis” in the acquired assets allows your company to enjoy a greater return on investment in a much shorter period of time.
Our tax attorneys advise clients on whether the taxable basis of an asset should be “stepped up” (such as equipment purchases) where a higher basis allows for a greater depreciation write-off in a relatively short period of time (3 to 7 years). Assets that amortize more slowly, such as “goodwill” should be allocated a lower valuation, as their value must be depreciated over a longer period of time (15 years).
The acquisition of specific intellectual property, business contracts and commercial leases can be much more complex. In some cases it may be necessary to negotiate terms with third party representatives, or to extend or modify existing contracts or leases. An asset purchase agreement is a complex legal document that conveys title to specific property, and should be prepared or reviewed by experienced mergers and acquisitions and contract attorneys. There may be several “conveyances” as part of an overall asset purchase agreement.
You may agree to accept a specific loan or obligation associated with a specific asset as part of the purchase agreement, but your exposure is limited to that quantifiable debt, instead of the general form of contingent liability one assumes in a stock purchase. Generally speaking, asset purchase agreements are usually favored by the “buyer” in the transaction.
When purchasing a “sole proprietorship” or another form of business such as a “limited liability partnership” there is no “stock” to purchase. Owners of these forms of businesses will sell their “ownership interest” in the company in the form of an asset purchase agreement. Specific attention to the assignment of contingent liabilities and unforeseen debts or obligations must be negotiated into the asset purchase agreement, usually as “set-asides” or an amount which is placed in escrow for a pre-determined period of time.
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