Asset Purchase Agreement Basis
Goodwill is the reputation of the brand that is built in relation to certain goods or services and attracts customers. When a company has built goodwill, customers are expected to come back to buy something from the company. The buyer will therefore demand the certainty that he is protected from the seller, which affects his goodwill. The buyer will generally require the inclusion of restrictive agreements in the contract, such as . B a non-competition clause. While the positive aspects of an asset purchase agreement are numerous, there are some drawbacks associated with asset purchase agreements, including: In an asset purchase, the buyer only buys certain assets from the seller`s business. The seller will continue to own the assets that were not included in the purchase agreement with the buyer. The transfer of ownership of certain assets may need to be confirmed by bids, for example. B the title deed to transfer immovable property. In most cases, the purchase of assets protects the buyer because the buyer is only responsible for the assets contained in the purchase agreement. The seller remains responsible for unsold goods.
The benefits of an asset purchase agreement are crucial for some companies. Ultimately, the most important benefit is that it ensures security and understanding between the parties involved while protecting their legal rights. The seller in an asset sale has the same or similar concerns about which assets to exclude from the sale that the buyer has with respect to the purchased assets. As with the wording of acquired assets, the wording of excluded assets may be adjusted to exclude only certain listed assets, or it may be broad enough for the seller to exclude all of the seller`s assets, except those expressly defined as purchased assets. Again, the seller should be concerned with holding certain assets and reducing certain liabilities, and these concerns should dictate the seller`s position in terms of wording in the APP. While there are disadvantages to a securities purchase agreement, there are several distinct advantages, including: The main disadvantage of a securities purchase agreement compared to a share purchase agreement is that each item must be transferred in accordance with its appropriate rules and made enforceable against third parties (e.B. by consents and approvals). This applies in particular to customer contracts, as a third party may view the transaction as an opportunity to renegotiate their contract. This could delay the deal and increase transaction costs. In addition, there may be significant contracts that are not transferable, or some licenses and consents may be unique to the seller.
Sometimes a buyer wants to maintain as many customer relationships as possible and therefore may choose to buy stocks rather than assets. The Ordinance on Transfers of Undertakings (for the Protection of Employment) („TUPE“) protects the rights of workers when transferring assets from an undertaking. The basic principle of TUPE is that when a seller buys the company`s assets as a „continuous operation“, it is assumed that the employees working in that company are automatically transferred to the buyer. On this basis, the buyer and seller should contact each other at an early stage to inform and consult with the relevant employees. For both asset purchases and share purchases, once the parties have agreed to the original documents, the buyer must exercise due diligence. This means that the buyer must gather all the information about the seller to determine the issues that are relevant to the transaction and that may affect it. Both transaction structures contain similar due diligence issues such as transfer and procedural issues. Common due diligence issues that are unique when acquiring assets include the nature and condition of specific assets and ownership of those assets.
Common due diligence issues that are specific to stock purchases include the seller`s ownership of the target company`s shares, the terms of key contracts, the identification of the target company`s liabilities, and the nature and condition of the target company`s assets. The required level of due diligence on the part of the buyer is usually higher in a stock purchase than in an asset purchase, as the buyer usually takes a higher risk. When buying shares, the buyer buys shares of a company that may have unknown or uncertain liabilities. If the company is not publicly traded, it may be more difficult for a buyer to value the shares of a company they want to buy. .