Purchased Assets
What is the Purchased Assets section? The Purchased Assets section creates the duty for the Seller to transfer certain assets to the Buyer and lists those assets in detail.
The Middle Ground: Depending on the particular business, the Purchased Assets will likely include accounts receivable, inventory, certain contracts, intellectual property, real and personal property, permits, certain rights held by the Seller, the Seller’s accounting-related books and records, and the goodwill of the Business.
Purpose: This term is supremely important because it identifies which assets will be transferred and sets the foundation for numerous other terms found in the Agreement. For example, the value of the assets listed here forms the basis for the Purchase Price, and other terms, including the Seller’s “Consents” disclosure, rely on this section to determine their scope.
Buyer Preference: Different buyers may have different motivations for making an asset purchase, so it is essential for the list of assets in this section to be tailored to the needs of the particular Buyer. Typically, the Buyer wants broad definitions of various Purchased Assets to ensure that it receives, at a minimum, all the assets it intends to purchase. For example, if the Buyer wants to purchase all the intellectual property held by the Seller, it would be better to list “all intellectual property assets” rather than “all intellectual property registrations” because registered intellectual property is just one subcategory of intellectual property assets. Depending on the specifics of the deal, an aggressive Buyer may even try to include assets not yet owned by the Seller. All Buyers will want to include language stating that all assets are being transferred free and clear of any Encumbrances (except for Permitted Encumbrances).
Seller Preference: The Seller wants to define the Purchased Assets as narrowly as possible to avoid having to transfer assets it does not intend to sell. A Seller’s best practice is to list every individual asset with particularity, but some categories of assets include too many items to list each one. In that case, the Seller’s best bet is to define the asset category as specifically as possible. Asset definitions should exclude any assets the Seller does not have the authority to transfer, as well as assets the Seller needs to retain to operate its remaining lines of business (if it is only selling a division or line of business).
Differences in a Stock Sale Transaction Structure: If the deal is structured as a stock sale rather than an asset acquisition, there is no need to list out the assets being purchased. Instead, a short paragraph creates the Buyer’s duty to pay the Seller and the Seller’s duty to transfer a specified number of shares to the Buyer.
