Asset Purchase Transaction
Halt | July 3, 2021 | 0 Comments

5 Legal Considerations For An Asset Purchase Transaction

Purchasing assets in a certain company can be quite challenging, especially if you’re a novice in the business industry and still struggling with the legalities. With many legal considerations to ponder upon and numerous risks to watch out for, accomplishing this task can be difficult. If you’re suffering from the same issues, worry not as there are various alternatives and methods you can utilize to get through this stage. 

To know more about these legal considerations and their role in your entrepreneurial journey, you can continue reading this article.  

Improving Your Asset Purchase Transactions

If you’re wondering about the proper ways of starting your entrepreneurial journey, you might’ve considered buying assets from your prospective companies. While such a decision could be a great start for your goals, you must be aware of certain factors that can affect your investment endeavors. For instance, you must be aware of the assets purchase agreement if you’re considering buying assets from other companies. 

Although acquiring ownership of certain assets in a company might offer you various benefits, there’s no denying that it could also pose many risks on your part, including shouldering the company’s liabilities. This is the main reason why most investors opt to bargain for the company’s certain assets only. As a buyer, you may also consider such an option as this can help you identify the best assets to invest in and determine which liabilities you’d like to take over. 

Apart from the legal liabilities, it could also be better if you’ll familiarize yourself with the type of assets you’re going to buy to know how you can make use of them. 

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How Do Asset Purchase Agreements Work?

Commonly known under the name asset sale agreement or asset purchase contract, an asset purchase agreement (APA) is a written agreement that primarily validates the transaction made between two business entities or enterprises. Apart from that, a business purchase agreement is a legal instrument that corroborates the purchase of certain business assets from a company. Intrinsically, this consists of the detailed information of the deal, including its warranties, terms and conditions, limitations, and prices. 

Some of the types of assets covered by the asset purchase agreement may include: 

  • Goodwill 
  • Plant and machinery 
  • Premises 
  • Stock 
  • Contracts 
  • Know-how 

With their complex processes, as well as legal and financial implications to your business, it would be best if you’ll hire a competent business lawyer to whom you can ask some questions about an asset purchase transaction. They can help you with the legal measures that you need to take whenever you’re dealing with transactions with other companies.  

Aside from that, they could also assist you with your settlements to ensure their legality and legitimacy. Learning about the asset purchase transaction can be beneficial to your investment endeavors.  

To have a better understanding of this matter, listed below are some important pieces of information that you ought to know about the legal considerations for an asset purchase transaction.  

Asset Purchase Contracts

When it comes to managing your asset purchase transactions, one of the primary things you can do is to prioritize the completion of your business contracts. An asset purchase contract is a fundamental legal document that’ll consist of all the business conditions and terms formulated by the parties to ensure that they’ll find a common ground to obtain their purposes. 

For instance, a buyer may specify in the contract all the assets that they’d like to purchase and the liabilities they’d like to take over. Similarly, a seller could also state which asset they’re going to sell and other necessary conditions that could benefit all parties.  

You may also consider hiring a lawyer to process the completion of the business transfers contingent on the agreement’s novation. In such cases, you can utilize a novation agreement to ensure that all parties will coincide with each other.  

Stock Check

Intrinsically, stock checking is the process of monitoring the number of certain assets in the company to ensure their sufficiency to accommodate the demands of the clients.   

In an asset purchase transaction, doing a stock check can be beneficial in ensuring that all assets, including their amount and value, are recorded for legal purposes. In such a way, it can help investors and buyers to know the actual price of each asset after considering certain factors that can affect them, such as interest rates, dividends, political climate, short-term and long-term investments, and demand and supply.  

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Aside from processing your asset purchase transaction contracts and determining the actual value of your prospective assets, another legal consideration that you must be wary about is your business’s goodwill. In this aspect, goodwill plays a vital role in ensuring that your business is being built up in a good light to attract more clients.  

Specifically, goodwill consists of certain intangible factors that can’t be measured, yet are highly significant to a business, such as brand reputation and customer loyalty. From a more legal perspective, goodwill is considered an asset and has always had its particular value in many businesses. Although used interchangeably with reputation, goodwill is provided with more legal protection than the latter. 

Upon establishing goodwill, businesses have more chances of gaining more potential customers. Similarly, it could also help buyers to gain protection from sellers and can request a non-inclusion clause. Besides that, they could also demand the inclusion of certain restrictive covenants into their arrangements to ensure full protection and security in their transactions.   

Value-Added Tax

When it comes to being mindful of certain legal considerations that could affect your investment endeavors, another thing that you must watch out for is the value-added tax (VAT). It’s a legal consideration that poses significant impacts on many businesses in terms of financial and legal transactions.  

Particularly, VAT is a form of sales tax levied on the final consumption of certain business activities, such as sales, trades, barters, exchanges, and leases of goods and services. In cases of purchasing assets in your prospective companies, you can pay no heed to the VAT as long as you’re VAT-registered, as well as your sellers. You can also search through your contracts to see if it has a special clause for both parties’ VAT obligations.    

Employees & TUPE

Besides accomplishing your VAT obligations, you must also process your business’s Transfer of Undertakings (Protection of Employment) Regulations (TUPE). It’s a legal consideration that primarily safeguards your employees’ rights during the transfer of certain business assets to another person or business entity.  

Intrinsically, the main principle of TUPE states that all employees engaged in the business, along with their contracts, will automatically be transferred to the new employer. This new employer will also be held liable for the employees’ concerns upon the transfer of assets. But, before that, buyers and sellers will have to work together to inform the affected employees about the upcoming asset purchase transaction.

To better deal with TUPE, it’s better to consult your trusted lawyer for advice. 

laws that protect employees

Bottom Line

Starting your investment journey may not be as easy as it seems. With the presence of various risks that can affect your business, you must be mindful of many considerations and factors that can disrupt your investment endeavors. Among these considerations is the asset purchase agreement, which primarily covers many areas of your asset purchase transactions. To better improve your asset purchase transactions, it could be better if you’ll be mindful of certain legal considerations, such as contracts, goodwill, stock check, TUPE, and VAT. 

Through these considerations, you can now ensure hassle-free asset purchases for your investment endeavors.

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