Asset Purchase Agreements (APAs): How They Differ from SPAs

Imagine discovering a hidden avenue in your small business sale or acquisition journey—one that offers a more tailored way to transfer selected assets and specific liabilities, while potentially reducing your risk. That’s exactly what an Asset Purchase Agreement (APA) can do. If you’ve only ever heard about Share Purchase Agreements (SPAs), expansion into the world of APAs might seem like a maze of unfamiliar details and nuances. But here’s the big question: Which structure—APA or SPA—truly fits your deal objectives?

In this article, you will learn how to:

• Understand Asset Purchase Agreements are and why they’re used.

• Compare APAs to SPAs and grasp the major differences.

• Recognize the pros and cons of asset acquisitions for both buyers and sellers.

• Structure your APA to protect your interests and minimize risk.

• Navigate common challenges and plan your next steps confidently.

By the end, you’ll be equipped with actionable insights about asset purchase transactions, so you can move forward with clarity and peace of mind. Let’s explore how APAs differ from SPAs and the unique opportunities they can present.

What Is an Asset Purchase Agreement (APA)?

An Asset Purchase Agreement is a legal contract that outlines the terms and conditions for buying and selling specific assets of a target business. Instead of purchasing the entire corporate entity (as is typical with a Share Purchase Agreement), the buyer acquires only those assets it wants—such as equipment, inventory, intellectual property, or customer contracts—while typically excluding unwanted liabilities.

Why Use an APA?

For buyers, APAs can reduce exposure to potential legal claims, debts, or obligations tied to the business as a whole. For sellers, an APA might offer flexibility in negotiating which assets are transferred and which liabilities remain. In some deals, it can also produce optimal tax outcomes. However, choosing an APA isn’t a universal solution—it must align with your deal structure preferences, strategic aims, and risk appetite.

Quick Tip: In certain regulated industries, purchase of licenses or contractual rights may require third-party consent. With an APA, you can detail exactly how and when these consents will be obtained.

APAs vs. SPAs: Key Differences

Although both Asset Purchase Agreements and Share Purchase Agreements share the end goal of transferring business ownership from seller to buyer, they differ significantly in their structure, scope, and risk allocation. Below is a concise comparison:

Focus on Specific Assets vs. the Entire Entity

An APA is laser-focused on specifically identified assets. This can include:

• Tangible assets (like real estate, machinery, equipment, or inventory)

• Intangible assets (like patents, trademarks, or goodwill)

• Contractual rights (like ongoing customer contracts or supplier agreements, subject to assignability)

In contrast, a SPA transfers shares, which automatically includes all assets and liabilities—unless there’s a separate agreement for exclusions.

Quick Tip: If the buyer only wants certain items—like a product line or a piece of specialized equipment—an APA allows more customization and can circumvent unwanted liabilities.

Liabilities and Risk Allocation

Under an APA, liabilities often remain with the seller unless explicitly assumed by the buyer. This can lessen the buyer’s risk but might also reduce the overall attractiveness of the deal to the seller. With an SPA, virtually all liabilities—past, present, and future—transfer to the buyer, which can make negotiations around representations, warranties, and indemnities more robust and potentially contentious.

Key Considerations for an Asset Purchase Agreement

1. Identifying Which Assets Are in Play

Clearly define which assets you are buying or selling. This list might include:

• Physical property (e.g., manufacturing facilities)

• Current inventory (e.g., finished goods, raw materials)

• Receivables (e.g., outstanding customer invoices)

• Intellectual property (e.g., patents, trade secrets)

• Contract portfolios (e.g., key client agreements, vendor contracts)

Quick Tip: Be detailed. Ambiguous or omitted assets can lead to misunderstandings and disputes post-closing.

2. Handling Liabilities and Exclusions

One of the biggest benefits of an APA is the buyer’s ability to cherry-pick which liabilities are assumed. However, you need to explicitly list what’s excluded. Common excluded elements might include:

• Litigation claims filed against the business prior to closing

• Loans or debts associated with the business

• Unfunded pension obligations or other long-term employee benefits

To minimize confusion, your asset purchase agreement should include a robust schedule or exhibit categorizing assumed vs. excluded liabilities.

3. Allocation of the Purchase Price

How the purchase price is allocated among various assets can significantly affect both seller and buyer from a tax perspective. Common categories in asset purchase transactions include:

• Tangible assets (equipment, real estate)

• Identifiable intangibles (patents, trademarks, trade names)

• Goodwill (residual intangible value associated with customer relationships or brand equity)

Quick Tip: Consulting a tax professional ensures you allocate the purchase price fairly and strategically. Misallocation can trigger adverse tax consequences for either party.

4. Obtaining Third-Party Consents

Some contracts aren’t automatically transferable. For instance, a key supplier or large customer may have a non-assignable contract that specifically requires written approval to complete the transfer. You may need to plan well in advance to secure these consents—otherwise, you risk leaving critical contracts behind.

5. Intellectual Property Rights

Whether you’re a buyer or seller, double-check who owns and who will continue to own intellectual property (IP). If the assets include trademarks, proprietary software, or patents, ensure the APA clearly outlines:

• The scope of each IP asset being transferred.

• Any license agreements if partial rights remain with the seller.

• Responsibility for renewing or maintaining IP registrations when applicable.

Quick Tip: IP-heavy businesses—like software or research-oriented companies—often require robust IP schedules. Engage with an attorney experienced in IP acquisitions for guidance.

Navigating the APA Process

While the exact APA process varies depending on the size of the deal, regulatory requirements, and the industry, there are common stages you can expect when structuring an asset acquisition. Below is a general overview:

Preparation and Due Diligence

Before signing an APA, both buyer and seller typically conduct due diligence. The buyer will scrutinize financial statements, customer relationships, and a list of physical assets to confirm they add up to the purchase price being discussed. The seller, likewise, will evaluate the buyer’s capacity to complete the transaction.

• Financial due diligence: Verifying revenues, expenses, and profit margins.

• Operational due diligence: Examining production capacity, supply chain stability, or legal compliance.

• Legal due diligence: Reviewing contracts, employment obligations, outstanding litigation, and other relevant documents.

Drafting the Agreement

Once both parties agree on a final purchase price (or range) and the basic terms of asset transfer, attorneys craft the proposed Asset Purchase Agreement. Common components include:

• Definitions of assets and liabilities: Precisely lists what’s included and excluded.

• Representations and warranties: The seller confirms certain facts about the assets’ condition, legal ownership, and so forth.

• Indemnification clauses: Details how buyer's or seller's losses are covered if representations turn out to be false or liabilities surface unexpectedly.

• Closing conditions: Specific events or approvals that must happen before legal ownership of the assets can transfer.

Negotiation and Revisions

Expect multiple rounds of negotiations to hammer out:

• Price adjustments based on updated valuations or last-minute findings.

• Timing of the closing date—especially if third-party consents or regulatory approvals are pending.

• Transition assistance if the buyer needs the seller to train team members or maintain client relationships for a period.

Quick Tip: An earn-out could be included in the APA if there’s a valuation gap or to incentivize the seller to help transitioning. However, earn-outs in an asset only deal can be more complex to structure compared to SPAs.

Closing and Post-Closing Activities

At closing, the buyer pays the purchase price, and the seller delivers the agreed-upon assets. Following this:

• Title and registration updates occur for any property or vehicles.

• Notices to customers and suppliers may be issued, informing them of the transition.

• Post-closing adjustments might be settled if the APA calls for inventory counts or corrections to the purchase price.

Potential Pros and Cons of an APA

Like any deal structure, Asset Purchase Agreements offer a mix of advantages and drawbacks. Understanding these factors will help you assess whether an APA aligns with your business objectives.

Pros

Cons

Quick Tip: If the seller must remain responsible for older claims or debts, they might consider demanding a higher purchase price or more favorable payment terms to compensate for retaining risk.

Summary and Next Steps

Whether you’re a buyer seeking to limit exposure or a seller looking for a clean break, an Asset Purchase Agreement can be an excellent deal structure—if it suits your strategic goals. Keep these insights in mind:

1. Clarify what’s included and excluded: Specify assets meticulously, and note which liabilities remain with the seller.

2. Allocate the purchase price accurately: Collaborate with tax advisors to maximize overall tax efficiency for both parties.

3. Check for required consents: Failing to obtain critical third-party approvals can derail or delay your transaction.

4. Review representations and warranties cautiously: Make sure they reflect the true condition of the assets and the status of the business.

5. Anticipate post-closing tasks: Plan for client or vendor notifications, IP updates, and any training or transitional assistance.

If you’re at the threshold of buying or selling a small business and deciding between an APA or an SPA, remember that each structure has unique implications for risk, taxes, and future obligations. The best course of action depends on the nature of the business, the condition of its assets, and your long-term vision.

Considering an APA for Your Next Transaction?

Don’t let uncertainty hold you back. Schedule a free confidential consultation to:

• Discuss how an Asset Purchase Agreement compares to other deal structures.

• Identify the assets you should consider including or excluding.

• Structure representations, warranties, and indemnities that reduce the chance of post-closing disputes.

• Explore options for tax-advantaged purchase price allocations.

Taking the time to set up the right deal can pay off exponentially in both peace of mind and financial returns. With an APA, you’re choosing a path that can be as precise or flexible as you need—delivering clarity and efficiency for both buyers and sellers in any asset acquisition scenario.

OffDeal leverages advanced technology and expertise to help small business owners achieve the same quality of M&A service previously reserved for large corporations. Our mission is to ensure every business owner has the opportunity to maximize their value when they're ready to sell.