New businesses may require a considerable period to generate cash flow and a substantial list of customers. Hence, purchasing an existing business is less risky than forming a new company.
The key element of a business purchase is the asset purchase agreement, the legal document that outlines the essentials involved in the process. In this article, you will discover the main features of Florida asset purchase agreements.
What is an Asset Purchase Agreement? – Understanding the Concept
An asset purchase agreement is a legal contract for the sale of a company. It is possible to draft an asset purchase agreement to transfer ownership of a company as a whole or limit the transaction only to specific business assets.
The more complex a company is, the more time the parties involved in the transaction will need to negotiate and finalize the arrangement. Considering the level of complexity involved, entrepreneurs usually engage expert business attorneys to negotiate on their behalf.
The standard provisions in a Florida asset purchase agreement must specify:
- Who are the parties to the agreement?
- Which assets are part of the transaction?
- Which assets are not part of the transaction?
- The purchase price
- The deadlines each party must meet to fulfill the contract
- Representations and warranties
- Whether the original owners will hold a continued role in the business
Asset Purchase Agreement in Florida – Taking a Closer Look
Negotiating the Agreement
The process of drafting an asset purchase agreement begins when the parties involved in the transaction meet to negotiate the terms. Generally, the process involves a set of offers and counteroffers by both parties.
Legal counseling is fundamental to protect your interests, especially to define the finer points of the contract.
Once the parties finalize the creation of the document, the seller must disclose a set of important aspects of the business involved in the transaction, including:
- The business’s history
- The business’s past financial performance
- The business’s tangible assets
- The business’s intangible assets (e.g., intellectual property rights)
- The business’s permits and licenses
- The existence of insurance policies
- A list of the company’s members or stockholders
- Whether the business has subsidiaries
- A list of the company’s employees
- A description of employee benefit policies paid by the company
- Whether the company has outstanding debts or pending litigations
Upon disclosing the required information, the seller must warrant a prospective buyer that the information provided is true. During the buyer’s due diligence, he or she may ask questions and perform inspections of the company’s property, equipment, and other assets.
Closing the Transaction
The seller’s disclosure will determine whether the buyer will rescind the agreement or move forward with the transaction. Depending on the payment method, the buyer may need additional time to secure the commitment of a lender.
At closing, the parties must sign the asset purchase agreement. The seller must deliver the agreed funds to the buyer, which will receive the business keys, documents, and other necessary items.