sboghossian Asset Purchase Agreement
When to use this
Use this skill when structuring and drafting an asset purchase agreement (APA) — a transaction in which the buyer acquires specific assets (and possibly assumes specific liabilities) rather than the entire legal entity.
Asset purchase vs. share purchase: the key distinction is that in an asset purchase, the buyer chooses which assets to take and which liabilities to assume. Unassumed liabilities remain with the seller (subject to successor-liability doctrines in some jurisdictions). This makes asset purchases attractive when the target has unknown or contingent liabilities.
Relevant for:
- Acquiring a business unit or division without the parent entity
- Distressed asset sales (assets only, no legacy liabilities)
- Carve-outs from larger group transactions
- Acquiring specific IP, real estate, or equipment portfolios
Prompt template
Draft an asset purchase agreement for [Buyer] to acquire [describe assets/business unit] from [Seller]. Include asset schedules, excluded liabilities, employee transfers, contract assignments, purchase price allocation, and transition services.
Use [[conversation-clarifying-questions]] to elicit [bracketed] inputs before drafting.
Required inputs
| Input | Why it matters |
|---|---|
| Buyer and Seller names and jurisdictions | Determines governing law options; employment transfer obligations |
| Description of assets to be acquired | The heart of the APA — must be exhaustively defined |
| Description of assumed liabilities (if any) | What the buyer is taking on; critical for deal economics |
| Purchase price and payment structure | Fixed; earnout; deferred; escrow |
| Employee transfer approach | TUPE/equivalent transfer of undertakings obligations apply in many jurisdictions |
| Jurisdictions where assets are located | Multi-country asset transfers require local transfer formalities in each jurisdiction |
| Regulatory approvals required | Competition clearance; sector-specific approvals; foreign investment review |
Optional inputs
- Transition services agreement requirement (will Seller continue to provide services post-closing?)
- IP licensing back to Seller (if Seller retains business that uses the IP being transferred)
- Real estate (owned vs. leased; assignment vs. new lease)
- Existing contracts to be assigned (consent requirements)
- Inventory and tangible assets (physical count at closing)
Document structure
1. Parties and recitals
- Full legal names and jurisdiction of incorporation
- Recital: brief description of the business/assets being sold and the purpose of the transaction
2. Defined terms
Define with precision:
- Acquired Assets: the complete list (cross-reference to Schedule 1)
- Excluded Assets: expressly identify what is not being transferred (critical — ambiguity creates disputes)
- Assumed Liabilities: the specific liabilities the buyer is assuming (cross-reference to Schedule 2)
- Excluded Liabilities: everything not in Schedule 2 stays with Seller
- Transferred Employees: the employees whose employment transfers with the business
3. Purchase and sale of assets
3.1 Assets schedule (Schedule 1)
An exhaustive, itemized schedule is essential. Categories:
- Tangible assets (plant, equipment, vehicles, inventory — attach inventory list as sub-schedule)
- Real estate (owned property — title deeds; leased property — lease assignments or new leases)
- Intellectual property (patents, trademarks, copyrights, trade secrets, domain names — attach IP schedule with registration details)
- Contracts (assigned contracts — attach list with counterparty, key terms, assignment consent status)
- IT systems and software licenses
- Goodwill (if transferring the business as a going concern)
- Regulatory licenses and permits (if transferable)
- Books and records relating to the acquired business
3.2 Excluded assets (Schedule 3)
State clearly. Commonly excluded:
- Cash and cash equivalents
- Accounts receivable arising before the closing date
- Tax refunds and credits
- Corporate records of Seller relating to excluded operations
- Assets used by both the divesting business and Seller's retained business (address through transition services or IP license-back)
4. Assumed and excluded liabilities
4.1 Assumed liabilities (Schedule 2)
Be specific. Commonly assumed:
- Obligations under assigned contracts arising after closing
- Liabilities to transferred employees arising after closing
- Accounts payable arising in the ordinary course of the acquired business before closing (if agreed)
4.2 Excluded liabilities
All liabilities not expressly in Schedule 2 remain with Seller. Express the exclusion in general terms AND list specifically:
- Pre-closing tax liabilities
- Product liability claims arising from pre-closing sales
- Environmental liabilities (pre-closing contamination — significant in industrial asset sales)
- Employment claims arising from pre-closing acts
- Any litigation relating to the acquired business pre-closing
5. Purchase price
- Amount: clearly stated in currency; if earnout component, define the metrics, calculation methodology, payment timing, and dispute resolution
- Allocation: how is the price allocated among asset classes? Critical for tax — buyer and seller often have conflicting interests on allocation; sometimes a price allocation agreement is required
- Escrow: common for representations and warranties claims; define amount, duration, release conditions, and dispute mechanism
- Adjustments: net working capital adjustment at closing (target NWC + adjustment mechanism); inventory adjustment; earn-out
6. Representations and warranties
The seller makes representations about the assets, liabilities, and the acquired business. Key categories:
- Title to assets (seller has good title; assets are free of encumbrances)
- Condition of tangible assets (sufficient for the purposes for which they are used)
- IP (no known infringement; registrations current; no licenses that restrict buyer's use)
- Contracts (assigned contracts are valid; no defaults; no consent required [or consents will be obtained])
- Employees (list of employees is accurate; no undisclosed employment claims)
- Environmental (no known contamination; no pending environmental proceedings)
- Tax (no tax liens on assets; all taxes relating to the assets have been paid)
- No undisclosed liabilities assumed
Buyer's representations: authority to enter the APA; financing secured (if required).
7. Employee transfers
This is heavily jurisdiction-dependent:
| Jurisdiction | Employee transfer rule |
|---|---|
| UAE (onshore) | No automatic TUPE equivalent; employment contracts must be re-signed with new employer; old employer must pay gratuity accrued to date of transfer; new employer starts gratuity fresh (unless parties agree to transfer gratuity liability) |
| DIFC | DIFC Employment Law: no automatic transfer; new contracts required; pay out DEWS/DIFC EWS benefits or agree to transfer |
| KSA | No TUPE equivalent; new contracts with new employer required; GOSI (social insurance) transfers manually; accrued employee rights with old employer must be settled |
| Lebanon | Labour Code: technically no automatic TUPE; practice varies; consider NSSF (social security) transfer implications |
| EU / UK | Transfer of Undertakings (Protection of Employment) Regulations (TUPE) — automatic transfer with existing terms and conditions; information and consultation obligations |
| France | Code du travail Art. L1224-1: automatic transfer of employment on transfer of a going concern |
In jurisdictions without automatic transfer: the APA must specify that Seller will terminate employees and pay all accrued entitlements, and Buyer will offer new employment to agreed employees. Agreed employees who decline the offer: Seller's responsibility.
8. Contract assignment
- Contracts that require third-party consent to assign: identify in the schedule; agreement to obtain consents before closing; what happens if consent is not obtained (closing condition? price reduction? carve-out?)
- Regulatory licenses: some licenses are personal and cannot be assigned; Buyer must re-apply (regulatory condition precedent)
- IP licenses: check the license agreement for assignment restrictions
9. Purchase price allocation
Different asset classes attract different tax treatment in most jurisdictions. Tax authorities may challenge allocations that are inconsistent with fair market values. Common allocation issues:
- Goodwill: tax treatment varies; in UAE (no corporate income tax on most businesses), allocation to goodwill may be neutral; in KSA or Egypt, allocation matters
- IP: IP allocated a high value may attract transfer pricing scrutiny if intra-group
- Inventory: allocated at cost vs. net realizable value
- Regulatory licenses: allocation value drives the stamp duty / registration fee in some jurisdictions (Egypt, Lebanon)
Consider attaching a purchase price allocation schedule as part of the APA, with both parties agreeing to use the same allocation for tax reporting.
10. Closing conditions and mechanics
- Closing conditions: regulatory approvals (competition, foreign investment, sector-specific); third-party consents for material contracts; no material adverse change; representations true at closing
- Closing deliverables: asset transfer instruments (bill of sale; IP assignment deeds; lease assignments; real estate transfer instruments per local law); officer's certificate; good-standing certificate; board resolution
- Simultaneous exchange and completion vs. sign-now close-later: if regulatory approvals are required, there will be a gap between signing and closing; deal protection (interim covenants, MAC definition) becomes critical
11. Transition services agreement
Where the Seller will continue to provide services to Buyer for a period post-closing (IT, finance, HR, logistics):
- Term (typically 6–24 months)
- Scope of services (detailed service schedule)
- Service levels
- Fees (cost-plus or market rates)
- Termination on notice
This is often a separate agreement but referenced in the APA.
12. Indemnification
- Seller indemnifies Buyer for: Excluded Liabilities; breaches of Seller representations; pre-closing tax liabilities
- Buyer indemnifies Seller for: Assumed Liabilities; Buyer's post-closing conduct
- Survival: representations survive closing for a defined period (typically 18–24 months for general reps; longer for title, tax, IP, environmental)
- Indemnification cap and basket (deductible): standard in M&A; negotiate based on deal size
13. Governing law and dispute resolution
Typically: the law of the Seller's or Buyer's jurisdiction or a neutral jurisdiction (DIFC, ADGM, English law). Arbitration clause recommended for cross-border transactions — see [[prompt-pack-arbitration-agreement-clause]].
Jurisdictional notes
UAE
Asset transfers in the UAE require specific transfer formalities depending on the asset type:
- Tangible assets: bill of sale; for registered assets (vehicles, equipment), re-registration at relevant authority
- Real estate: transfer through Dubai Land Department / Abu Dhabi DARI (mandatory form + fee + NOC from Seller's bank)
- Trademarks and IP: assignment deeds filed with MOCCAE / SAIP / relevant office
- Branches and commercial registrations: the business registration is personal to the Seller entity; Buyer must register its own entity
KSA
- Asset transfers require registration with MISA (SAGIA) if foreign investment is involved
- Real estate: transfers via Real Estate Registry at Ministry of Justice
- Saudization (Nitaqat) obligations: if the business unit employs below the required Saudization percentage, this is an inherited regulatory issue — address in representations and conditions precedent
Lebanon
- Real estate transfers: mandatory registration with the Real Estate Cadastre (Cadastre)
- Stamp duty: contracts above a threshold must be stamped (Ministry of Finance fee)
- Commercial registration: separate filing required for any assignment of the commercial registration or trade name
Egypt
- Asset transfers: registration requirements vary by asset type
- Real Estate Registration Authority for property
- Company assets sold as a going concern may require GAFI approval if the acquiring entity is foreign
- Stamp duty applies to many commercial contracts
Common mistakes
- Excluded liabilities list too vague — "all pre-closing liabilities" without specifics creates disputes; environmental liabilities and employment claims are frequently contested
- No consent condition for material contracts — buying a business without the key customer contract because consent was assumed and not obtained
- Employee transfer handled informally — no written record of which employees are transferring and on what terms
- No earnout dispute mechanism — earnout payments are one of the most litigated APA provisions
- Failure to allocate IP rights properly — particularly trade secrets and know-how, which have no formal registration to transfer
Related skills
- [[prompt-pack-arbitration-agreement-clause]] — dispute resolution for the APA
- [[prompt-pack-agreement-legal-draft-review]] — reviewing an APA presented by the counterparty
- [[heuristic-always-state-jurisdiction-first]] — jurisdiction determines transfer formalities
- [[heuristic-no-us-style-boilerplate-in-civil-law-jx]] — adapt US-style APA for MENA civil law jurisdictions
- [[kb-corporate-mna-mena]] — MENA M&A regulatory and law reference