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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.
The prerequisites for an asset purchase agreement are as follows −
- Sale and transfer of chosen asset/assets.
- Purchase price.
- Obligations (post – closing).
- Terms and termination.
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.
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.
The disadvantages of an asset purchase agreement are as follows −
- High tax.
- What is an asset deal in merger and acquisition?
- Compare asset purchase and stock purchase.
- Differentiate between Asset purchase method and stock purchase method
- What is a risk-free asset?
- What is Asset Cost of Capital?
- Difference between Asset Turnover and Fixed Asset Turnover
- What is Capital Asset Pricing Model (CAPM)?
- What is Asset Beta or Unlevered Beta?
- What is capital asset pricing model (CAPM) in financial management?
- How is Current Asset Turnover Ratio Calculated?
- Replacement Cost – Correct method of replacing an existing asset
- How to Analyze Asset Turnover Ratio?
- How to Calculate Net Asset Turnover?
- Differences between Acquisitions and Asset Management
- What constitutes a return on a single asset? How is it calculated?