What is an asset purchase?
An asset purchase is a transaction which involves a business owner (the ‘Seller’) selling some or all of the assets of the target business (the ‘Target’) to a buyer (the ‘Buyer’). The Buyer may sometimes assume responsibility for certain liabilities of the Seller in relation to the Target in addition to assets.
An asset purchase is sometimes called a ‘business purchase’ or ‘business and asset purchase’. The reference to ‘business’ is more likely to be included where the Buyer is acquiring the business of the Target (including the goodwill) as a going concern. However, the use of the descriptions varies.
The Seller may be an incorporated business (such as a private limited company) or the owners of an unincorporated business (such as a sole trader or partnership). Similarly, the Buyer may be any category of legal person (or persons) – incorporated or unincorporated.
The Seller and the Buyer will have to reach agreement as to exactly which assets, rights and liabilities of the Target are to be included (or assumed to be included) in the asset purchase. Assets that are commonly acquired as part of an asset purchase transaction include goodwill, the benefit of business contracts, stock, plant and machinery, premises, intellectual property rights, IT and IT systems, and business information and records. Contrastingly, assets that are often excluded from an asset purchase include cash, debts and insurance claims. However, the included and excluded assets will vary from transaction to transaction.
The asset purchase agreement will have to identify specifically which assets and liabilities are to be transferred by the Seller to the Buyer because, except for a few exceptions (for example some transfers of employees or environmental liabilities), no assets transfer from the Seller to the Buyer automatically or by operation of law. They are often identified by category. Any assets, rights and liabilities of the Target which are not included in the asset purchase will remain with the Seller when the asset purchase transaction is completed.