Asset Purchase Agreement
What It Means
An Asset Purchase Agreement details the terms and conditions involved in the sale and purchase of a company’s assets. It is one of the two common forms of Purchase Agreements, with the other being a Stock Purchase Agreement.
Why It’s Important
An Asset Purchase allows a Buyer to pick and choose which assets and which liabilities they will assume in an Acquisition. The choice between an Asset Purchase or a Stock Purchase will have significant tax implications for both Buyers and Sellers. Many Buyers prefer this type of transaction because it allows them to reduce the risk of hidden liabilities and can provide Tax Shield advantages for years after the transaction.
However, sometimes business circumstances make an Asset Purchase a difficult option. For example, some key customer or vendor contracts may be non-transferable, which could mean that the Buyer would need to renegotiate those contracts after the purchase of the company.