The 6 Most Important Elements of an Asset Purchase Agreement

Asset Purchase agreements need to have a lot of detail. This is because the agreement is very useful for describing the asset to be purchased. All the terms of the agreement need to be set out carefully and the rights of the parties must be laid out clearly.

However, it can be easy to clutter the agreement with unnecessary information. After all, some information are more important than others. Here are the 6 most important elements that you need to include in the asset purchase agreement.

The Parties to the Asset Purchase Agreement

You cannot have an agreement without parties. This seems basic but it bears saying all the same. It is necessary to correctly identify the parties to the asset purchase agreement. This is especially so with corporate entities that may have several related yet independent subdivisions. There can be no confusion about the parties.

The Assets

One of the leading causes of problems arising out of asset purchase agreements is that the parties are not specific enough about the subject of the agreement. In order to make the agreement as clear as possible, it is key to be as specific and descriptive as possible.

If the agreement concerns land, you need to describe the land and its location exactly as it is listed in the land records. If you are purchasing a business, you need to cover all bases including equipment and other assets of the business.

The Price

It is not only important to mention the price; it is equally important to clearly lay out how it is going to be paid. This can be another cause of disagreements under the contract.

Representation and Warranties

These are the things that either party is relying on as part of the transaction. It is usually devoted to a section on its own and covers topics like assurances as to the fitness of the product for a particular purpose or the legal status of the parties.

Conditions for Closing

This is one area that is easy to skip. It is necessary to lay out what must happen before the agreement can be deemed to be concluded. This may cover requirements like payment of the purchase price and delivery of the assets. If the agreement will only close after repairs have been made by the seller, it should be stated clearly in the agreement.

Other Important Information

While this is often referred to as “boilerplate” language, it is as important as the others. Information in this section can cover topics such as what means will be used to settle disputes that arise under the transaction, which state’s laws will govern the agreement, or how modifications can be made to the agreement.