Understanding Asset Purchase Agreements 

An asset purchase agreement is a legal document outlining the terms and conditions pertaining to the purchase and sale of a company’s assets. These assets may include tangible properties like machinery, inventory, and real estate, or intangible assets such as intellectual property, customer lists, and goodwill. APAs are preferred over stock purchase agreements when buyers wish to acquire specific assets and avoid inherent liabilities. 

APAs are structured to include the identification of assets, the purchase price, representations and warranties, covenants, conditions to closing, indemnifications, and dispute resolution mechanisms. The precise nature of these agreements is essential to both parties, as it governs the transfer of assets and helps in mitigating risks associated with the transaction.

Potential Disputes in Asset Purchase Agreements 

Despite the comprehensive nature of APAs, disputes are not uncommon. These disputes can arise from various aspects of the agreement. Often, disagreements occur when the seller is alleged to have misrepresented the condition, value, or attributes of the assets being sold. Disputes over the valuation of assets, especially intangibles, are also common. Other typical disputes include allegations of non-compliance with an agreement’s terms or issues arising from post-closing adjustments, which are adjustments made to the purchase price based on the actual asset valuation. APA disputes often raise highly fact specific issues that are deeply rooted in the standards and norms of the relevant industry. For this reason, it can be difficult for a trier of fact without industry specific knowledge to accurately assess the issues at play in an APA dispute.