An Asset Purchase Agreement (APA) is a legal document that outlines the terms and conditions related to the purchase and sale of a company's assets. It differs from a stock purchase agreement, which involves buying the shares of the company and taking on its liabilities.
The APA specifies the assets being sold, which can include tangible assets like machinery and inventory, and intangible assets like goodwill and intellectual property.It also details the liabilities being assumed by the buyer, if any, the purchase price, payment terms, and any representations and warranties made by both parties.
This type of agreement is often preferred by buyers because it allows them to select specific assets and liabilities they are interested in acquiring, offering a way to minimize the risk of inheriting unknown or unwanted obligations.
Mergers and Acquisitions (M&A): Utilized in the restructuring or consolidation of companies, allowing a buyer to acquire specific assets of a company rather than taking over the company as a whole.
Bankruptcy Proceedings: Often used to sell assets of a bankrupt company, enabling the buyer to acquire assets free of any encumbrances or liabilities.
A common misconception is that an Asset Purchase Agreement automatically includes all assets and liabilities of the selling company.
In reality, the APA is highly customizable and specifically outlines which assets and liabilities are involved in the transaction, often excluding certain assets or liabilities from the deal.