Asset Purchase Agreement Template

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An asset purchase agreement, or “APA“, allows a business to sell its tangible or intangible property. Examples of a business’s assets include machinery, equipment, customer lists, trademarks, patents, and any other valuable property. This agreement is only for the purchase of assets mentioned in the agreement and does not include the liabilities of the business.

Table of Contents

What is an Asset Purchase?

An asset purchase is the act of a buyer purchasing all or a portion of a business’s assets. Depending on the asset, the seller may be liable to pay ordinary income tax or capital gains depending on the assets sold.

Asset Purchase vs Stock Purchase

The main difference with an asset purchase is a buyer will be obtaining ownership of the asset only with no liabilities. In a stock purchase agreement, the buyer assumes ownership of all the assets and liabilities of the entity.

Difference Asset Purchase Stock Purchase
Tax Treatment Capital assets are taxed as capital gains, other assets are taxed as ordinary income. Taxed as a capital gain to the seller.
Tax Basis Assets get adjusted to fair market value Assets do not adjust to fair market value
Business Liabilities Do not transfer to the buyer Transfer to the buyer

 

Real-World Difference

In October of 2015, Walgreens agreed to a stock purchase agreement with Rite Aid for $9.4 billion in cash. Under the deal, Walgreens would take ownership of all assets and liabilities of Rite Aid.

Although, after the FTC blocked the sale, the parties converted to an asset purchase agreement so Walgreens could purchase a portion of Rite Aid’s stores. In June 2017, Walgreens agreed to purchase 2,186 of Rite Aid’s 4,650 stores for $5.175 billion.

Conclusion: The deal converted to an asset purchase because Walgreens’ primary goal was to accumulate more stores. Therefore, Walgreens’ only option was to buy as many Rite Aid stores that the FTC allowed them to purchase.

Capital Gains

Capital gains is the amount of profit that is made on a capital asset. The IRS categorizes capital gains into 2 types, short-term and long-term (Topic no. 409):

  1. Short-Term – For assets that are owned for a year or less. Taxed as ordinary income (10% to 37%).
  2. Long-Term – For assets that are owned for more than 1-year. Tax brackets depending on the seller’s income:
    • 0% – Income less than $78,750
    • 15% – Income $78,750 to $434,550
    • 20% – Income more than $434,550

What is a Capital Asset?

A capital asset is classified by the IRS (page 20) as:

  • Stocks and bonds;
  • Real estate (residential or investment);
  • Household furnishings;
  • Vehicle;
  • Personal property;
  • Jewelry; and
  • Precious metals (gold, silver, etc.).

What is NOT a Capital Asset?

  • Inventory;
  • Accounts receivable from a barter agreement;
  • Real estate used by the business; and
  • Patent, invention, model, design, copyright, trademark, or similar intangible properties.

Hiring the Seller

If the seller is going to work for the buyer after the sale and received any type of salary, this will be taxed as ordinary income and outlined in a separate employment contract or consultant agreement.

Sample Asset Purchase Agreement

Download: Adobe PDF, MS Word, OpenDocument

How to Write

Download: Adobe PDF, MS Word, OpenDocument

Step 1 – Acquire Your Copy Of The Asset Purchase Agreement Template

The Asset Purchase Agreement Template presented in the sample image is available in any of the formats designating the buttons underneath this image. To access this paperwork for download in the format you want to work with, select the “PDF,” “Word,” or “ODT” buttons.

Step 2 – Record The Date Associated With This Agreement

Gather the details outlining the purchase being conducted then open the file you have downloaded from this page. The first item of this agreement, Article “I. The Parties,” opens this document with a statement solidifying the agreement date attached to it. Date this agreement by entering the month and two-digit day of the month then the two-digit year of this agreement across the two blank lines presented after the words “…Made This” and before the term “…Between The Following Parties.” Generally, this is the date when the agreement is completed with information or signed to execution. 

 

Step 3 – Name The Buyer Requesting This Sale

The next task to be handled will be the identification of the Purchaser or Buyer. This is the Party who shall submit a predetermined payment for the concerned asset or assets. Record the name of the Purchaser immediately after the word label “Buyer” then the building number, the street or road, and the suite number found in the formal “…Mailing Address Of” the Purchaser in the next available space. Be advised, this report must display the official name of the Purchaser therefore if the concerned Buyer is a business entity make sure to furnish its legal name including any status terms such as “Corporation,” “Corp.,” or “LLC.”  Complete this item by supplying the “City Of” the Purchaser’s mailing address and the state where it is located across the final two lines of the “Buyer” section.  

 

Step 4 – Identity The Seller Behind Paperwork

The Party with the authority to sell the asset or assets this agreement handles must be named in the “Seller” section. Locate the first empty line of this section then deliver the full name of the Seller to its content. Once done, continue to the second space (following the phrase “…Mailing Address Of” then distribute the first address line in the Seller’s address. Generally, this will be a PO Box Number or the building, street, and suite number where mail must be directed to reach this Party.  The remainder of the Seller’s mailing address will be expected after the term “City Of” and the words “State Of.” Produce this content with information found in the Seller’s mailing address. 

 

Step 5 – Indicate If This Purchase Is For Tangible Assets

The property being sold must be defined before the specifics of this sale are discussed. The second item is titled “II. Tangible Assets” and presents two checkbox items. One of these must be selected as a description of the asset being sold. If the Purchaser is buying intangible assets (i.e. a copyright or marketing list) but will not be buying physical property such as machinery, then place a check or a mark in the first checkbox (labeled “No Tangible Assets”).  If the asset being sold is physical property, then mark the “Tangible Assets” checkbox.  The “II. Tangible Assets” section presents several blank lines under the headings “Description Of Tangible Asset(s)” and “Price ($).” This area only requires a report if the “Tangible Assets” item is selected. If so, then the physical property being purchased through this agreement must be named under the “Description Of Tangible Asset(s)” heading and its value listed under “Price ($).” 

 

Step 6 – Report If Intangible Assets Are Being Sold

The third section designated with the bold label “III. Intangible Assets,” will seek to define if the sale generating this agreement concerns non-physical property. If only physical property will be purchased here, then mark the checkbox item “No Intangible Assets.”  If any “Intangible Assets” are being sold, then select the second checkbox in “III. Intangible Assets.” This will indicate that non-physical items (such as intellectual property rights or a right to place a claim) will be purchased.   The “Description Of Intangible Assets” area and the “Price ($)” section both seek further definition to any “Intangible Assets” being sold. The blank lines underneath these headings are set to display your descriptions and the cost of the “Intangible Assets” if the second item in this section has been selected.  

 

Step 7 – Establish The Requested Purchase Price

The exact payment the Buyer must submit to the Seller to gain ownership of the assets we defined in the previous sections must be recorded numerically on the blank line following the dollar symbol in the next section (labeled “IV. Purchase Price”). Keep in mind this should be the full cost of the asset or assets being sold.  

 

Step 8 – Specify If A Deposit Is Required

Oftentimes, a Seller will require a deposit submitted to reserve the asset(s) being purchased. This is especially true for expensive sales. In the section labeled “V. Deposit,” one of the checkbox items presented must be selected to define the status of the Seller’s deposit requirement. If a deposit will not be required for the next step to be taken, then select the checkbox corresponding to the statement “A Deposit By The Buyer Is Not Required.” If a deposit is required for this purchase to progress to the next step, then mark the checkbox corresponding to the statement “A Deposit Is Required…” and input the dollar amount that will be required for the deposit on the blank line provided. This will also require some further definition.  A deposit will either be considered “Non-Refundable” or “Refundable.” If a deposit is required, but the Buyer will not be entitled to its return should the sale be canceled then mark the “Non-Refundable” box. The only exception to this option results when the asset(s) being purchased have been damaged or reduced in value after the inspection and original worth has been established. If the asset(s) this agreement concerns is “Refundable” then select the second checkbox statement following the checkbox statement “A Deposit Is Required…” When this item is selected it will indicate that should this sale be terminated without progressing, the Buyer will be entitled to a refund of his or her deposit. 

 

Step 9 – Address The Topic Of Asset Inspection

As mentioned earlier, an assessment of how much the asset(s) being purchased may be needed. In “VI. Inspection,” one of two statements must be selected to declare whether the concerned asset(s) must be inspected or not. If so, then select the “Shall Be” checkbox and document the number of days allowed to the Buyer after the inspection to review its results on the blank line between the language “…A Period Of” and the words “Days To Review…”  If the Seller and Buyer have agreed that an inspection of the asset(s) being sold is unnecessary or inapplicable then select the checkbox labeled “Shall Not.”  

 

Step 10 – Set The Provisions For Payment

The seventh item of this agreement will give additional attention to the transaction taking place. In “VII. Payment” select the first checkbox if the Purchaser’s full payment for the asset(s) will be scheduled to be received on a predetermined closing date. 

If the Buyer’s payment will not be paid in full and requires “Owner Financing” then select the second checkbox in the “VII. Payment” section. After selecting this option, continue through this statement to give some detail to the financing terms.  Locate item “A.) Down Payment (At Closing)” then record the full amount of money that will initially be paid to the Seller on the closing date on the blank line displaying the dollar sign.  Item “B.) Interest Rate” must be supplied with the percentage of the principal loan amount that must be paid for consideration of receiving financing to purchase the asset(s). Supply this percentage to the blank line in this item.  Supply the length of time the Buyer is scheduled to pay the owed amount in “C.) Term” by entering the number of “Months” or “Years” allowed on the blank line provide then selecting the “Months” or “Years” checkbox to define the reported number.  Finally, record the two-digit day of the month when the payment owed for financing must be paid on the blank line preceding the words “Of Every Month” in the final item of this section (“D.) Payment Due: On The…”).  

 

Step 11 – Discuss The Financing Status This Sale Is Based On

As mentioned earlier, the manner in which this transaction is carried out will need to be fully defined. Thus, in “VIII. Financing,’ it will be time indicate if the concerned sale of asset(s) depends upon the Buyer’s ability to complete this purchase. If the Purchaser will be paying for the concerned asset(s) with his or her own capital, meaning the sale will not require additional financing then mark the “Not Contingent” checkbox statement in this section. In addition to specifying that the Buyer’s ability to purchase the asset(s), a time limit will be imposed on the Buyer to provide proof of this ability to pay. The start date of this timeline is the effective date of this document and the number of days making up this time limit should be dispensed to the blank line after the words “…Proof Of Funds Within…” If this sale depends upon “…The Buyer’s Ability To Obtain Financing From A 3rd Party” (i.e. a bank) then select the second checkbox in “VIII. Financing” and supply the number of days after the effective date of this paperwork to provide the Seller with a letter of pre-approval from an established Lender.  Select the third checkbox if this sale can only progress with the “Buyer’s Ability To Obtain Financing From The Seller” then indicate the number of days from this agreement’s effective date that will be given to the Buyer to obtain approval from the Seller for the concerned loan amount on the blank line provided. 

 

Step 12 – Present All Third Parties Who Must Approve This Purchase

Since the Third Party Approval may be a determining factor in the progression of this asset(s) sale, section “IX. Approval Of 3rd Party” will need to address this issue. If this sale only depends upon the Buyer and Seller’s abilities and credentials, then mark the checkbox labeled “No Requirement.”  If this sale may not proceed unless a Third Party has given approval, then mark the checkbox labeled “Requirement” in “IX. Approval Of 3rd Party.” This selection requires that you identify the Third Party whose approval must be obtained for this asset sale to proceed on the blank line provided.  

 

Step 13 – Document The Date And Costs Required For Closing

The closing date when payment for the assets or a down payment for the assets must be received by the Seller will be defined in the tenth article (labeled “X. Closing”). Present the calendar date when this transaction must occur using the two blank lines following the words “…Transaction Shall Be Closed On” to document the month, two-digit calendar day, and two-digit year defining this date of payment or closing.  Continue defining when the closing must occur by assigning the final time of day that date that payment must be received for the Buyer to be in compliance with this term. Use the space after the word “…At” but before the choices for “AM” or “PM” to list this time of day, then mark either of the checkboxes that follow to indicate when this deadline time is.  In addition to defining when the closing must be completed, the costs that incur during this action should be appointed to one or both of these Parties. For instance, if a broker is involved, he or she will require payment upon closing. The identity of the Payer will need to be discussed in this section (“X. Closing”) in the statement labeled “Closing Costs.” If the Buyer will assume all the costs of closing, then select the “Buyer” checkbox in this statement to show this.  If the Seller agrees to the responsibility of paying the “Closing Costs,” then select the second checkbox in this section.  Both Parties (Buyer and Seller) may have determined that they will each be obligated in “Bearing Their Own Expenses” for closing this sale. If so, then select the third checkbox item in “A.) Closing Costs.”  

 

 

Step 14 – Review The Contents Outlining The Conditions Of This Sale

Articles “XI. Seller’s Representations” through “IV. Access To Information” do not require any supplementary information and will provide statements that will apply (generally) to the majority of asset sales possible. It is strongly recommended that both Parties read through these arias since each will be obligated upon signing to remain compliant with all the conditions placed in this document. It would be inadvisable to alter the language of these sections unless any such changes are overseen by a qualified professional such as an attorney or legal broker.

 

Step 15 – Assure The Quality Of The Concerned Asset

At times, the Seller’s asset(s) may suffer a degradation in quality or condition after an inspection has been successfully completed without incident but before the closing date. For instance, if some of the assets sold are machinery that is heavily damaged by floodwaters during an unforeseen event during this period then the Purchaser may not want to proceed with the payment originally defined. In item “B.) Period Until Closing” a certain number of days after an event that causes the worth of the assets to be compromised will be given to both Parties to renegotiate. Name this number of days on the blank line in this item. 

 

Step 16 – Include Mediation And Arbitration Terms As A Precaution

Unfortunately, there may be times when either or both Parties will take up issue with the other regarding this sale of asset(s). Such a disagreement can be costly to the Buyer and the Seller however, a precautionary measure for resolution in such a scenario has been provided in “XVII. Mediation And Arbitration.” Use the first two blank lines in this section to name the county and state where a Mediator to settle such a dispute may be found.   In cases where mediation may not work, the option for arbitration should be presented (where both Parties agree to a third party’s judgement on a situation) by presenting the county and state where arbitration should be sought on the final two blank lines of “XVII. Mediation And Arbitration.” 

Step 17 – Deliver The Location Of This Agreement’s Governing Law

Article “XX. Governing Law” will require that the jurisdiction where legal disputes concerning this paperwork must be handled be documented. Find the blank line in this section then name the “State Of” the legal system that will enforce and rule over this paperwork its participants. 

 

Step 18 – Display The Seller’s Authorization

Once this agreement is completed with the requested material, the Seller should read through every provision and term. When he or she has decided to agree to selling the concerned assets to the Buyer, it will be time for the Seller to commit this decision to paper. The Seller must locate the “Seller” section that immediately follows the final article, “XXII. Entire Agreement,” then sign the blank line attached to the label “Seller’s Signature.” The blank line adjacent to this signature must be supplied with the current calendar date as soon the Seller has completed performing his or her signature. Only the Seller should supply the signature date requested along with his or her signature. If the Seller is a business (i.e. a corporation), then an elected Representative of this business may enter this agreement on its behalf by signing his or her name on the “Seller’s Signature” line and reporting the signature “Date” on the line adjacent to this.  After supplying the two items above, the Seller must print his or her name. The “Print Name” line presented below the “Seller’s Signature” line will accept this entry. 

Step 19 – Provide The Buyer’s Approval

The Buyer of the concerned asset(s) will also need to physically agree to the terms presented in this paperwork by executing his or her signature on the “Buyer’s Signature” line and delivering the signature “Date” on the blank line provided in the “Buyer” section at the end of this document. It will be expected that the Buyer has reviewed this entire document once it has been completed and agrees to the contents. The signature provided on the “Buyer’s Signature” line will obligate the Buyer to these terms while the “Date” will indicate when this authorization to proceed has been delivered.  In addition to his or her signature and signature date the Buyer must print his or her name on the blank line labeled as “Print Name.”