What is asset purchase agreement in an asset deal?

Asset purchase agreement is the agreement between buyer and seller of an asset. It states the terms and conditions related to the purchase and sale of an asset. The asset may be a plant and machinery, goodwill, stock etc.

Prerequisites

The prerequisites for an asset purchase agreement are as follows −

• Sale and transfer of chosen asset/assets.
• Purchase price.
• Representations.
• Precedent.
• Conduct.
• Closing.
• Obligations (post – closing).
• Conditions.
• Compensation.
• Terms and termination.
• Other/miscellaneous.

Requirements (Post completion)

After completion of the asset purchase agreement, following are the requirements −

• Stamp duty and stamp duty land tax (if applicable).
• VAT payment (if applicable).
• Replacing old contracts.
• Administrative issues.

Reasons for failure

The reasons for failure in this agreement are given below −

• Dealing with the wrong person.
• Signing the agreement in the name of another company.
• Identifying/addressing essential conditions.
• Not specifying a long stop date in agreement.
• Financial adjustments.
• Closing requirements.
• Protection from competition.
• Not setting the dispute.
• Not hiring the correct person.

Advantages

The advantages of an asset purchase agreement are as follows −

• Buyer can choose a particular asset as per the buyer’s choice.
• Asset fair market value is decided by the seller.

Disadvantages

The disadvantages of an asset purchase agreement are as follows −

• High tax.
• Liabilities.