An asset purchase agreement (APA) is the definitive contract in which a buyer purchases a business's assets, equipment, inventory, customer lists, goodwill, rather than the seller's legal entity and its liabilities. Most small-business acquisitions are structured as asset sales.
Worked example
| Section | What it defines |
|---|---|
| Assets acquired | Equipment, inventory, IP, goodwill |
| Liabilities excluded | Old debts stay with the seller |
| Purchase price & allocation | Split across asset classes for tax |
| Reps, warranties & indemnities | Seller's promises and remedies |
| Closing conditions | What must be true to close |
The price allocation matters: it drives depreciation and each side's tax outcome.
Why it matters when buying a business
Buyers prefer an asset sale because they leave behind unknown liabilities and get a fresh tax basis. The APA is where your protections live, the reps and warranties and indemnification clauses are what you fall back on if something surfaces later. Never sign a template APA without an M&A attorney.
