Parties to an asset purchase agreement may avoid unpleasant surprises with respect to title transfer issues if every asset, or category of assets is carefully itemized in a schedule to the agreement. This detailed consideration of the assets may identify title issues and reduce misunderstandings between the parties, enabling the purchaser to conduct adequate due diligence.
This article provides information to consider when purchasing a business through an asset purchase agreement (APA). The first thing the author stresses is ‘What exactly is being transferred?’ It is common for an APA to cover the purchase of several assets, even sometimes all of the assets of a business (such as a medical practice).
Yet, does a transfer of all the assets really mean all of the assets? Does it include accounts receivable? What about the lease for the physical premises? Who is responsible for the liabilities of the business (employee pensions, loans)? What about the office artwork or business vehicles? Parties must be clear about what exactly they are transferring via an APA. Moreover, the purchaser needs to fully understand the scope of the title he is acquiring with respect to each asset acquired under the APA.
Takeaway:
- Inserting a schedule into an asset purchase agreement can help clarify both what is covered by the agreement, and any potential title transfer issues.