APA (Asset Purchase Agreement)

The Asset Purchase Agreement (APA) is the controlling document of an asset sale transaction, analogous to a Stock Purchase Agreement (SPA) in a stock sale or a Merger Agreement in a merger. It typically runs 60–120 pages in an SMB transaction and covers: (1) description of the transaction; (2) purchased assets and excluded assets; (3) assumed liabilities and excluded liabilities; (4) purchase price and adjustments; (5) representations and warranties (both sides); (6) covenants for the pre-closing period and the post-closing period; (7) closing conditions; (8) indemnification; (9) termination; (10) boilerplate (governing law, notices, etc.).

How it actually works: Drafting starts after LOI execution and typically runs 30–60 days alongside diligence. The buyer's counsel usually drafts first, sending to the seller for response. Key negotiation points: the scope of purchased vs. excluded assets (especially cash, AR, owned real estate, and specific contracts); the treatment of "assumed liabilities" (which ordinary-course liabilities transfer); the reps and warranties (what is being promised and the qualifications); the indemnification framework (basket, cap, survival, treatment of known vs. unknown issues); and the closing conditions (what must happen for the deal to close).

The APA references — and is accompanied by — the disclosure schedules, which are separate exhibits listing every specific exception to the reps (every contract, every litigation matter, every employee, every IP asset). The disclosure schedules effectively define the scope of the seller's representations. Also accompanying the APA: the bill of sale, assignment and assumption agreement, escrow agreement, employment agreements, non-compete/non-solicit agreements, and transition services agreement (if applicable).