What is it?
An asset purchase agreement is a contract which governs the sale of business assets from one party to another.
Application for small business people
If a small business wants to expand, then the owners will often consider acquiring a smaller competing business or another complimentary business. If they find a party that is willing to enter into such a transaction, then they will negotiate an asset purchase agreement.
The asset purchase agreement will generally cover physical property, such as land or premises, trading stock, machinery and other factory or retail fixtures. It may also include intangible assets, such as contractual relationships, customer information, intellectual property, goodwill and so on. The specific assets covered by the agreement should be clearly spelt out so as to avoid any confusion.
The agreement will often require the vendor give the purchaser access to the financial records and other details about the functions of the business. This will enable the purchaser to be fully informed about the true value of the sale.
If the vendor is seeking to transfer any third party contracts (such as a lease, mortgage or supplier contract) to the purchaser, then it will usually be necessary to obtain the consent of that third party.
Small business owners need to be aware of the tax consequences of acquiring business assets through an asset purchase agreement. Issues such as apportionment, capital gains tax, Goods and Services Tax, stamp duty and land tax will all need to be carefully considered.
6 key things to consider
Some of the most important things you will need to consider before entering into an asset purchase agreement include:
- What assets should be covered by the agreement?
- What is the purchase price and the payment conditions?
- Is there a restraint on competition?
- What is the value of the stock on hand and the business goodwill?
- What arrangements are to be made for employees of the business?
- What are the tax consequences of the purchase?
Legal Practitioner Director
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