How to Structure Asset Purchase Agreements for NYC Businesses

Are You Selling or Purchasing a Business or Business Asset?

Are you selling or purchasing a business or a business asset in or near New York City? If your answer is yes, your asset purchase agreement (APA) should be prepared by an experienced New York City business attorney.

An asset purchase agreement is a legal instrument that documents the purchase of a business or business asset. It spells out the structure of the transaction, the price, limitations, and warranties.

A New York City business lawyer can help you negotiate the purchase of a business or business asset and will ensure that your asset purchase agreement is fair, complies with the law, and is not in conflict with your best long-term interests.

What Are Asset Purchase Agreements?

When you buy a business, what you are actually buying is an assortment of assets that, together, constitute the business. Those assets may include furniture, equipment, trademarks, phone numbers, websites, intellectual property, contracts with customers, and other items.

An APA spells out the conditions and terms under which a seller will transfer all of the assets that belong to the business to a buyer. The APA is usually prepared in advance and then scrutinized by both parties until it is signed and the business is transferred at the closing.

What Are the Key Elements of an Asset Purchase Agreement?

When a New York City business lawyer prepares an asset purchase agreement, that agreement will usually include terms and conditions that address these issues:

1.  the particular assets being transferred and how that transfer will take place
2.  the sale price and how payment will be made
3.  the obligations of the buyer and seller before and after the closing
4.  risk allocation provisions such as warranties and indemnification
5.  provisions for how the closing will be conducted

Element #1: Assets and Their Transfer

An asset purchase agreement should describe as specifically as possible the business assets being transferred. Most small business transfers exclude, for instance, the seller’s cash on hand, bank accounts, and security accounts.

An asset purchase agreement in New York should also specify which liabilities, if any, are transferred to the purchaser. If the purchaser buys any of the business’s contracts, the APA must specify whether (and exactly when) the purchaser takes over the liabilities under those contracts.

Element #2: Sale Price and Payment

Typically, a purchaser makes a down payment for the business or business assets at closing and pays the remainder in installments. The buyer usually gives a promissory note for the remainder and a security agreement in case the buyer defaults.

The security agreement and promissory note are typically separate documents that are signed at the closing. The asset purchase agreement will typically refer to these documents and state that the buyer must deliver the promissory note and security agreement at the closing.

Element #3: Buyer’s and Seller’s Obligations

Both buyers and sellers usually have obligations before and after the closing. The seller should operate the business as usual and not cause any kind of “materially adverse event” before the closing.

Both parties may be obligated to valuate the inventory prior to the closing to determine the final purchase price. The seller may also be obligated to continue consulting the buyer subsequent to the closing to facilitate the smooth transfer of the business and customers.

Element #4: Risk Allocation Provisions

Typically, buying business assets does not transfer the business’s liabilities to the buyer, but there are exceptions, especially if the business will operate at the same location with the same equipment and employees.

In such cases, the purchase of assets may entail successor liability, and sellers must disclose any potential liabilities. An indemnification provision provides that the seller must indemnify the buyer from all losses and damages due to a breach of the APA or any warranties the seller made.

Buyers and sellers usually negotiate the extent of such provisions. The parties may also negotiate whether the asset purchase agreement’s indemnification provisions become the “exclusive” remedies for a breach. If so, other remedies (like damages for breach of contract) are excluded.

Element #5: Provisions for the Closing

The APA must include the “conditions to closing.” In a typical business sale, for example, there is usually a condition that the landlord of the premises consents to transfer the lease to the new owner. The asset purchase agreement should also confirm that if the selling company has more than one shareholder, all of the shareholders consent to the sale.

The mechanics of the closing should also be spelled out, including what a seller must bring to the closing. It may be keys to the premises or passwords, for example. Buyers typically must deliver the down payment price with a wire transfer or certified check, along with any promissory note.

An asset purchase agreement may also include provisions for what happens if closing conditions can’t be fulfilled. For instance, if the landlord refuses to give consent, the seller usually has the right to walk away from the transaction. The APA should spell out such “termination” rights.

Why Should a Lawyer Prepare Your Asset Purchase Agreement?

Your APA must be prepared by a New York City business attorney. Don’t even think about doing it yourself with a preprinted or downloaded blank APA form. APAs are complicated, and if one part is changed, it can affect the entire document.

As the document is prepared, your attorney can help you determine how particular assets and contracts will be transferred and which permits and titles are (and are not) transferable. Your attorney will also spot anything that may cause an undue risk for either the seller or the buyer.

Which Lawyer Should Prepare Your Asset Purchase Agreement?

At Fisher Stone, our attorneys are also entrepreneurs who have started their own businesses. We know what it takes to operate a business successfully, and we protect our clients by making sure that their businesses are entirely compliant with all pertinent local, state, and federal laws.

We provide counsel for every stage and aspect of business ownership, from the formation of a business to its closure, transfer, or sale. The attorneys at Fisher Stone have decades of business law experience. We provide sound advice and representation specifically crafted to your needs.

If you need an APA prepared or if you need an experienced business negotiator to act on your behalf, contact Fisher Stone now by calling 516-908-9519. Your first consultation with the team at Fisher Stone is provided without any obligation or cost. Helping your business is our business.