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You’ll likely need an asset purchase agreement if you buy or sell an online business. This legal document outlines the terms and conditions of the sale of certain business assets, including a website. The APA specifies what’s included in the purchase and what is excluded, the purchase price, payment terms, and other essential details.
The purpose of an APA is to protect both the buyer’s and seller’s interests. It also serves as a record of the transfer of ownership.
💼 If you’re buying or selling a website or online business, download our free Asset Purchase Agreement template in Microsoft Word format (please read the disclaimer before using the document). This template was drafted by an attorney for use with the potential sale of a website or online business. We recommend having your own attorney review the template to ensure it meets your specific needs.
Asset Purchase vs. Stock Purchase
When buying or selling a business, there are two primary ways to structure the transaction: an asset purchase or a stock purchase. Each method has advantages and disadvantages, and it’s important to understand the differences.
In an asset purchase, the buyer purchases the specific assets and liabilities of the business rather than the stock or ownership interest in the company. This allows the buyer to acquire some or all of the assets without the liabilities, which can be beneficial if there are certain assets or liabilities that the buyer wants to avoid.
Most online business acquisitions are asset purchases. Buyers typically prefer this because it allows them to limit their potential liability, as opposed to purchasing the corporation or LLC that owns the assets.
In a stock purchase, the buyer purchases the stock or ownership interest in the company, which includes all of the company’s assets and liabilities.
A stock purchase can be riskier for the buyer, as they assume all of the company’s liabilities. This can include unknown or contingent liabilities, such as pending lawsuits or tax liabilities.
What Is an Asset Purchase Agreement?
An Asset Purchase Agreement (APA) is a legal document that outlines the terms and conditions of the sale of a company’s assets. This may include a website, domain name, customer lists, intellectual property, and any other assets needed to run the business.
This legal document is drafted after both parties (buyer and seller) have agreed on the purchase price and other terms of the sale. If you’re working with a broker, they may have an APA template you can use if you prefer. Otherwise, you can use another template or hire an attorney to draft the APA. If you use a pre-existing template, it’s a good idea to have your attorney review the document and make suggestions on any details that need to be added or revised.
Both the buyer and seller should have plenty of time to review the APA before closing. This allows time for attorney review, revisions, and any discussions or further negotiations that may be needed to finalize the terms and reach an agreement.
When Is an Asset Purchase Agreement Needed?
If you’re buying or selling an online business, you’ll need an Asset Purchase Agreement (APA). Even if you’re buying or selling a small online business, having an APA in place is still important. It helps prevent any misunderstandings or disputes between the buyer and seller and serves as a record of the transaction. The APA may be needed for tax or financial records to verify the details.
Elements of Asset Purchase Agreement
Although the specifics can vary depending on the situation, here are some of the common elements or components of an APA for the sale of an online business.
The recitals section provides a background and context for the transaction, including details about the buyer and seller, their intentions in entering into the agreement, and any other pertinent information.
Included and Excluded Assets
The APA outlines the assets that are being purchased and those that are not. This section is critical in ensuring that both parties agree on what’s included in the transaction. This may include tangible assets such as equipment and inventory, as well as intangible assets like intellectual property or customer lists.
The purchase price is specified in the APA, along with any payment terms. The buyer may pay a lump sum upfront or make payments over time. If the payment is not 100% upfront, it’s important to clearly outline the payment schedule and any consequences for late or non-payment.
Representations and Warranties
The representations and warranties section outlines the promises made by the seller regarding the assets being sold. The representations and warranties may cover a wide range of issues, including the ownership of the assets, the condition of the assets, the absence of any liens or claims against the assets, etc.
The indemnification clause specifies who is responsible for any losses or damages that may occur after the sale. This is an important section to protect both parties in case any issues arise after the transaction is complete.
The APA should also include information about how the sale will be governed. This includes the state or province governing law, and the location of courts or arbitration for any disputes that may arise.
The signatures section of the APA is where both parties sign the agreement to indicate their acceptance of the terms and conditions. This section is critical in ensuring the agreement is legally binding and enforceable.
Who Drafts the Asset Purchase Agreement?
Generally, the buyer’s attorney will draft the initial version of the APA. However, this is not always the case. In some instances, the seller’s attorney may prepare the initial version. In other cases, a template may be used.
Regardless of who drafts the initial version, it is important that both parties have their attorneys review and negotiate the terms of the APA. This ensures that the document is fair and reasonable to both parties and that all necessary legal protections are included.
We also have other templates for various stages in the acquisition process: