Asset Purchase Agreements: Errors You Cannot Afford To Commit

On March 16, 2020, in Corporate, by John A. Weber IV, ESQ.
Asset purchase agreement

Commercial transactions often involve an asset purchase agreement (“APA”) that is vital to business activity. But there can be a few conditions that make things go wrong.

Drafting of a simple asset purchase agreement is essential for the successful execution of the deal.

Below are the errors to avoid or else they can cost you dearly:

  • Essential Parties are Excluded from APA

There may be a case when a buyer signs an APA with company X, while the actual owner is company Y or a shareholder in company X. The same can happen with the seller also. To avoid this, make sure that only the essential and real parties are a part of the deal.

  • Failure to Address the Pre-conditions to the Deal

Failing to make sure pre-conditions are resolved before the completion of the transaction can increase the complexity of the deal. These conditions are clearance of the seller’s debts, third party consents, transfer of key employees, banking approvals, and approvals from other authorities.

  • What are “The Assets” that you are purchasing?

IYou want to make sure that you identify each and every asset that you are purchasing.  Some assets can be tangible (e.g., refrigerators, soda machines, furnishings) or intangible (e.g., business name, lease).  You should determine which assets are owned or leased.  You should inspect the tangible assets to make sure that they are in working order.  For the assets that you are purchasing, you want to make sure that the seller actually has ownership of them and has the right to transfer them to you.  With the leased equipment, you need to decide if you want to (and can) assume the lease and, if so, what are the terms of the lease.

  • No Specifications about Closing Requirements

All actions to be taken, and all documents to be provided at closing, should be clearly identified by the standard asset purchase agreement. Failure to specify such conditions makes it difficult for both parties in the long run.

  • Failure to Change Signatories

Generally, buyers don’t feel the need to change the signatories to banking and other business accounts. But it is essential to keep third parties informed at the right time about such changes.

With the Law Firm of Vaughn, Weber & Prakope, PLLC, you will always be able to make the right legal decisions when it comes to the formation of LLC asset purchase agreements. Contact us to get the most appropriate legal guidance from lawyers with extensive knowledge gained over years of experience.

More Articles:

Buying and Selling a Small Business

Important Details to Include in a Standard Asset Purchase Agreement

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