Asset purchase agreements are used to transfer all of a business’s assets without transferring the ownership of the entity itself. This agreement will finalize all the terms and conditions related to the purchase and sale of a company’s assets. With an asset only sale, the buyer only obtains the assets of a company, but not the legal entity or the liabilities of the business. You can also structure an asset sale so the buyer picks and chooses which assets of the company the buyer wants to obtain. This may be done to avoid depreciable assets or high-risk properties that may be subject to future liability.
In this type of sale, the aim is to take all of the good working components of the business and leave all of the negative components behind. Hence, the seller usually will maintain ownership of the long-term obligations of the company. Asset sales can equal higher taxes for the seller. Intangible assets (think intellectual property) are taxed at capital gains rates and tangible (think trucks, office equipment etc) assets can be subject to higher ordinary income taxes. For buyer an asset sale is attractive because tax benefits may include allocation values for assets based on their depreciation.
Certain assets can be difficult to transfer due to issues of ownership issues, assign-ability, and third-party consents (think intellectual property, government or corporate contracts, certain leases, licenses, permits). While in most cases an asset sale will include the trade name of the previous business (a term in the asset purchase agreement), it is important to make sure it will be included and that the seller’s name brand recognition will not be lost in the sale. This is just three paragraphs of information about an asset only purchase agreement; a call to one of our experienced legal counsel, should be in short order when considering such an agreement.