Asset Purchase Agreements: What Business Owners should know when considering selling/buying assets

So what is an asset purchase agreement (APA)?

It’s an agreement which sets out the terms under which business and assets are to be purchased or transferred. Basically, it’s an agreement which provides certainty on what assets are being purchased and what assets are being excluded.

What should be included in the APA?

The main key considerations to be included in an APA are:

– Assets – A list of which assets are included AND excluded. These can include tangible assets such as stock or property. It can also include intangible assets such as intellectual property or contractual rights.

– Debts – Are any debts being assumed by the buyer(s)?

– Price – The purchase price and any payment terms usually including an allocation of the purchase price to each asset class. The treatment of tax and who is responsible for this should also be included.

– Warranties – Any warranties or representations being given by the sellers(s) to the buyer(s). Warranties gives the buyer assurance on the information about the assets such as the title to property or the quality and condition of stock and inventory.

– Indemnities – Indemnities may be included for specific issues or losses suffered by the buyer.

– Restrictive Covenants – Will the buyer want the seller to be subject to restrictions post completion such as not soliciting customers/suppliers or working for a competing business.

Does TUPE apply to an APA?

– TUPE is a legal provision designed to protect employees if a business changes hands by ensuring the employees terms and conditions are upheld.

– Whether TUPE applies or not is a matter of law. TUPE is only triggered on an asset purchase/transfer and not a share purchase/transfer. If the business is transferring, it is likely TUPE applies and all employees automatically transfer under TUPE.

– If the employees are transferring as part of the included assets, then TUPE will apply.

What are the tax advantages?

– By selecting the assets, the buyer should be able to leave any historical tax liabilities with the selling company.

– The assets are acquired individually and the price paid for each individual asset (allocated in the asset purchase agreement) will form part of its base cost in calculating any future chargeable gain (or allowable loss).

– The buyer may be able to:

a) obtain reinvestment roll-over relief (in connection with both gains realised on the disposal of tangible assets and credits accruing from the disposal of intangible assets);

b) obtain tax relief for the cost of certain intangible assets acquired; and

c) claim capital allowances in respect of plant and machinery.

Tax advice should always be taken with a specialised tax advisor.

If you have any questions or queries relating to a sale of assets, please speak to our Corporate Team on 0161 926 9969 or email us at corporate@mlplaw.co.uk.