An agreement between a seller of business assets and a buyer is called an asset purchase agreement. It sets the terms of the sale and includes provisions such as payment of the purchase price. All of the business assets, fixtures, furnishings and equipment that the seller utilized for company business are included. This also includes the right to be the lease holder.
There will be effective dates and closing dates. The effective date refers to when the agreement comes into effect. The closing date refers to the time the deal closes and funds are paid. The period between these dates is when the buyer's loan is underwritten, if the transaction is financed, and when all inspections should occur.
What behavior does the asset purchase agreement define and control?
As far as the seller is concerned, the agreement represents that the seller has the authority to sell its asset. It defines the value of the assets as equal to the purchase price. There will also be assurance that the seller is not in legal or financial trouble. As for the buyer, the agreement represents that it has the authority to buy the assets and that everything necessary to consummate the deal has been disclosed.
What are the most important elements of an asset purchase agreement?
The chief purpose of the asset purchase agreement is to describe the assets being purchased, to set forth the terms under which the goods are being transferred and to lay out the rights and responsibilities of both parties. These are the most important elements that must be included in the agreement:
The parties to the agreement must be correctly identified. This is especially true with corporate entities that have multiple subdivisions that are related, yet independent. The entity that is entering into the agreement must be clearly identified.
Be as specific and descriptive as possible when it comes to what is being purchased. If it is land, describe the lot as it is listed in the land records (often, however, the land is the subject of a separate agreement). If it is a business that includes equipment, list every piece of equipment, and attach an exhibit that lists the equipment if necessary. If services are being purchased, provide details on the nature of the services, along with what is and is not included in said services. The more details you provide, the better.
It is a purchase agreement, so price is obviously an essential element. Do not forget the terms on how it will be paid. If seller financing is involved, the buyer is allowed to pay a portion of the purchase price at closing and will often simultaneously sign a promissory note for the remainder of the purchase price.
Representation and warranties.
This section covers the things that either party is relying on as part of the transaction. Topics covered include warranties as to the fitness of the product for a particular purpose, the condition or quality of the items being sold and the legal status of the parties entering into the agreement.
There are several conditions that must be met before closing the transaction. The sale must be approved by whatever third-parties need to be involved, such as government agencies; for example, the Department of Bulk Sales for the State of New Jersey and fire department inspections, etc. Any repairs agreed upon by the seller should be taken care of prior to closing.
If you have any questions regarding the purchase of a business, contact this office for a consultation.
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