What is Asset Purchase Agreement (APA)?
The Short Answer
Asset Purchase Agreement (APA) explained simply
An Asset Purchase Agreement (APA) is a legal contract that outlines the terms and conditions when a buyer acquires specific assets and assumes specific liabilities from a seller. Unlike a stock purchase, where the entire company (including all its liabilities) is bought, an APA allows the buyer to pick and choose which assets they want and which liabilities they are willing to take on. This can be beneficial for buyers who want to avoid inheriting unknown or undesirable liabilities of the seller.
Real-World Example
Buying a Bakery’s Equipment
Imagine you want to open a bakery. Instead of buying an existing bakery business entirely, you decide to buy just their ovens, mixers, and customer list. An APA would be used to specify exactly which ovens and mixers you are buying, the price for each, and any related liabilities you might assume (like a warranty on a specific oven). This way, you avoid taking on the previous owner’s debts or legal issues.
Why this matters
The APA is important because it protects both the buyer and the seller. For the buyer, it clearly defines what they are acquiring and what liabilities they are not taking on. This helps them avoid unexpected problems. For the seller, it ensures they receive the agreed-upon price for their assets and clarifies their remaining obligations.
Always have a lawyer review your APA. It’s a complex document, and small details can have big consequences.
Always have a lawyer review your APA. It’s a complex document, and small details can have big consequences.
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