Brief Definition
An Asset Purchase Agreement (APA) is a legal contract between a buyer and a seller outlining the terms and conditions under which specific assets of a company will be purchased.
Further Explanation
An Asset Purchase Agreement (APA) is a legal contract between a buyer and a seller outlining the terms and conditions under which specific assets of a company will be purchased. Unlike a stock purchase agreement, which involves buying shares and taking ownership of the entire company, an APA focuses on the acquisition of particular assets. This allows the buyer to select which assets and liabilities to acquire, often excluding unwanted liabilities.
Example:
Company A wants to acquire the production line assets of Company B. They draft an APA detailing that Company A will purchase the machinery, inventory, and production-related patents for $5 million. Company A also agrees to assume certain supplier contracts but not any of Company B’s debts. The APA includes representations and warranties from Company B about the condition of the machinery and patents, and outlines the steps needed to close the transaction, such as obtaining regulatory approvals and completing a final inspection of the assets.