An asset purchase agreement (APA) is the definitive contract in which a buyer purchases the individual assets of a business, equipment, inventory, contracts, and goodwill, rather than buying the seller's legal entity. It spells out exactly which assets and liabilities transfer, the price, and the terms. Most small-business acquisitions use an APA because it lets the buyer take the good parts and leave unwanted liabilities behind.
What's inside an APA
An APA is the "definitive agreement" signed after the letter of intent and diligence. Core sections typically include:
- Assets purchased, equipment, inventory, customer lists, IP, goodwill, assigned contracts.
- Excluded assets & liabilities, what stays with the seller.
- Purchase price & allocation, how the price is split across asset classes for tax.
- Representations & warranties, the seller's promises about the business.
- Covenants, non-compete, transition help, and conduct until closing.
- Closing conditions, financing, lease consent, and approvals.
Asset sale vs. stock sale
| Feature | Asset sale (APA) | Stock sale |
|---|---|---|
| What you buy | Selected assets | The entity's shares |
| Liabilities | Mostly left behind | Inherited, known & unknown |
| Tax basis | Stepped up (buyer-friendly) | Carried over |
| Common for | Most small-business deals | Some deals with hard-to-transfer contracts/licenses |
Compare the two in depth in our asset vs. stock sale guide and the purchase agreement basics.
Why buyers usually prefer it
An asset purchase lets you leave behind unwanted liabilities, cherry-pick which contracts to assume, and step up the tax basis of the assets for future depreciation, see asset-sale tax treatment. Sellers sometimes favor a stock sale for their own taxes, so the structure is often negotiated.
Frequently asked questions
The definitive contract to buy a business's assets, equipment, inventory, contracts, goodwill, rather than its legal entity. It defines which assets and liabilities transfer, the price, and terms.
An asset sale buys selected assets and leaves most liabilities behind; a stock sale buys the entity and inherits everything. Most small deals are asset sales.
It leaves unwanted liabilities behind, lets you choose contracts to assume, and steps up the tax basis for depreciation. Sellers sometimes prefer stock sales for tax reasons.
