Use our asset purchase agreement to buy or sell a company’s assets.
Updated September 21, 2023
Written by Josh Sainsbury | Reviewed by Brooke Davis
An asset purchase agreement is a legal contract that establishes the terms and conditions for the purchase of another company’s intangible or tangible property. This document may record the purchase of assets like patents, trademarks, client lists, machinery, supplies, and equipment. Note that you can only use this contract for purchasing assets without liabilities.
An asset purchase is the action of an individual buying all or some of a company’s assets. Most asset purchases occur between two companies, but sometimes individual shareholders may participate in an asset purchase if they use a share sale to complete the transaction.
For a buyer, an asset purchase agreement is preferable to share sales because companies pick and choose which assets they wish to acquire without taking on the other company’s business liabilities (which could be considerable).
While you may hear individuals use the phrases “asset purchase” and “stock purchase” interchangeably, they have some key differences:
| Differences | Asset Purchase | Stock Purchase |
|---|---|---|
| Business Liabilities | The liabilities don't transfer to the buyer. | The liabilities transfer to the buyer. |
| Tax Basis | The assets are adjusted to fair market value (FMV). | The stocks aren't adjusted to FMV. |
| Tax Treatment | Capital assets are taxed as capital gains, while non-capital assets are taxed as ordinary income. | Taxed as capital gains. |
Capital gains refer to the profits made on the sale of an asset if you sell it for a higher price than you purchased it.
Capital gains are divided into short-term capital gains and long-term capital gains. If you hold the asset for one year or less, the value of its short-term capital gains will be taxed as ordinary income.
If you hold the assets for longer than one year, any capital gains are taxed as long-term capital gains. The tax you have to pay on it depends on your overall income [1] :
Assets eligible for capital gains include: [2]
The IRS classifies the following items as noncapital assets:
You can use an asset purchase agreement in a number of situations, such as:
Some key sections to include in an asset purchase agreement include the following:
You need to include basic demographic information about the sellers and buyers. You should include the names, contact information, and addresses of all sellers and buyers involved. Don’t forget to include the date of the agreement as well.
You need to include information about the asset being sold. For example, if the buyer is purchasing real estate, you need to include the appropriate address and a property description.
You should specify the purchase price being agreed to by the buyer and seller. You also need to specify how the buyer is going to make the payment. A few options include cash, check, credit card, or wire transfer.
Don’t forget to include any money that the buyer is being credited with prior to the issuance of the final payment, the amount of money due when the agreement is signed, and any additional installments that will be made in the future.
Do not forget that there will be some taxes that follow this transaction. You need to specify who is going to be responsible for paying the taxes and when they’re going to pay them. A few examples of taxes that might be paid include sales taxes and property taxes.
You should specify when the buyer is going to take possession of the property from the seller. You should also specify that the seller is responsible for keeping the property in its present condition until that time.
The seller should also specify that the asset is being sold without any liens or liabilities against it. If there are liens or liabilities on the property, the buyer needs to be made aware of them and agree to take possession of the property with those intact or paid off.
The agreement should also specify which location’s laws govern the execution of this transaction.
If there’s any dispute related to this agreement, the agreement should specify the court system that will be responsible for resolving these disputes. The agreement should also specify whether mediation or binding arbitration will play a role in resolving any of these disputes.
Below you can download an asset purchase agreement in PDF or Word format:
