When buying or selling a business, an Asset Purchase Agreement (APA) is one of the most common structures used. Unlike a stock sale, where ownership of the company changes hands, an APA involves transferring specific assets (and sometimes liabilities) of the business. Because of this flexibility, it’s a powerful tool—but also full of pitfalls if not carefully drafted.

1. Scope of Assets and Liabilities  - The APA should clearly spell out which assets are being sold (equipment, inventory, contracts, intellectual property, goodwill) and which are excluded. Just as important, watch for liability provisions—buyers often want to limit assumed liabilities, while sellers may try to push more over. Ambiguity here can lead to post-closing disputes.

2. Purchase Price and Adjustments - Beyond the headline purchase price, the APA should cover adjustments (for working capital, inventory, or accounts receivable). Without clarity, the “final” price can look very different from what was agreed in principle.

3. Representations and Warranties - Sellers typically make a wide range of promises about the business (e.g., compliance with laws, ownership of assets, financial accuracy). Buyers should scrutinize these closely and negotiate survival periods, while sellers should push for knowledge qualifiers and liability caps.

4. Indemnification - The indemnification section is the “insurance policy” of the deal—how one side compensates the other if reps and warranties prove false or liabilities arise. Key points: baskets (deductibles), caps (limits), and survival periods (time limits).

5. Non-Compete and Transition Support - Buyers often want non-compete or non-solicitation agreements to protect the goodwill they are paying for. Transition support (such as training or consulting from the seller) can be equally important for a smooth hand-off.

6. Tax Allocation - The APA should specify how the purchase price is allocated across asset classes. This affects depreciation, tax liabilities, and reporting for both parties. Getting tax advisors involved early is critical.

7. Closing Conditions - Finally, pay close attention to what must happen before closing (financing, landlord consents, third-party approvals, regulatory filings). These conditions can make or break the deal at the last minute.

Asset Purchase Agreements are highly customizable, but that flexibility makes them risky without experienced counsel. Whether you’re buying or selling, a well-negotiated APA is the difference between a smooth transaction and years of headaches. At Lardiere McNair & Stonebrook, we can help make sure that the agreement is crafted to best suit your needs.