Asset Purchase Agreements: A Comprehensive Guide
If you plan to buy or sell a business in the UK, one of the most important legal documents you’ll encounter is the Asset Purchase Agreement (APA). Whether you’re a buyer looking to acquire specific business assets or a seller keen to divest in a structured and secure way, a well-drafted APA is essential.
In this guide, we’ll break down what an asset purchase agreement is, what it involves, and why legal expertise is crucial.
What is an asset purchase agreement?
An asset purchase agreement is a legally binding contract that outlines the terms under which a buyer agrees to purchase specific assets from a seller. These highly customisable agreements allow buyers and sellers to tailor the deal to meet their commercial objectives.
The APA sets out the purchase price, conditions, warranties and indemnities, and any post-completion obligations. Because of its detail and complexity, professional advice is critical to ensure the asset agreement accurately reflects your intentions and protects your interests.
What assets can you buy in an asset purchase agreement?
In an asset purchase agreement, buyers can acquire a wide variety of business assets. These typically include both tangible and intangible items such as:
- Equipment, fixtures, and machinery
- Stock and inventory
- Intellectual property (e.g. trademarks, patents, copyrights)
- Client and supplier contracts
- Employees
- Business premises (freehold or leasehold)
- Goodwill and brand value
- IT systems and software
- Customer databases
The specific assets must be identified in the agreement to avoid ambiguity and future disputes. Anything not listed in the agreement will remain with the seller.
Buying a whole business with an asset purchase agreement
Asset purchase agreements aren’t just for buying isolated parts of a business – they can also be used to acquire an entire business operation.
For example, when a seller wants to sell a specific company, the buyer may purchase all its assets, including stock, equipment, contracts, intellectual property, goodwill, and premises.
When are asset purchase agreements commonly used?
Asset purchase agreements are frequently used when buyers want to acquire specific parts of a business without taking on all its liabilities.
Common situations include:
- Business restructures: Where a company divests part of its operations to streamline or focus on core activities.
- Distressed sales: Purchasing assets from an insolvent company through an administrator or liquidator.
- Family business succession planning: When business assets are sold to the next generation rather than the whole entity.
- Expansion strategies: When a buyer wants to acquire the assets of a competitor or supplier to grow their own operations.
- Franchise or licensing exits: When a franchisee is selling assets back to the franchisor or to another franchisee.
Benefits of an asset purchase agreement
One of the main advantages of an asset purchase agreement is the ability to pick and choose the assets and liabilities involved. This provides greater control and risk management for the buyer.
Other benefits include:
- Flexibility to exclude unwanted liabilities or obligations
- Protection from legacy issues that may affect the wider business entity
- Potential tax efficiencies in certain scenarios
- Simpler due diligence focusing only on the assets in question
- Useful for acquiring part of a business rather than the whole company
For sellers, it can be an opportunity to restructure operations or divest non-core assets while maintaining other parts of their business.
What’s included in a business asset purchase agreement
- Identification of assets: A clear and detailed list specifying which assets are being sold and which are excluded from the transaction.
- The sale price of the assets: A breakdown of how the purchase price is allocated across different assets.
- Apportionment of liabilities: Outlining which – if any – liabilities the buyer will assume.
- Details of the sale/completion: Key dates, completion mechanics, and any conditions that must be satisfied prior to closing.
- Warranties and indemnities: Legal assurances provided by the seller regarding the condition, ownership, and performance of the assets.
- Regulatory considerations: Any licences, permits, or regulatory approvals required to complete the transaction lawfully.
- Any restrictive covenants: Clauses preventing the seller from competing with the business or soliciting customers and employees for a specified period.
- Employee considerations: Compliance with TUPE (Transfer of Undertakings Regulations 2006) to ensure proper treatment of affected staff.
Asset purchase sale process
- Due diligence: The buyer thoroughly reviews the assets, liabilities, and legal risks.
- Heads of terms: A preliminary document setting out the basic terms of the deal.
- Drafting the APA: Lawyers for both parties negotiate and finalise the agreement.
- Completion: The transaction is executed, and assets are transferred as agreed.
Asset purchase agreement vs share purchase agreement
One of the most common questions we receive is: What is the difference between an asset purchase agreement and a share purchase agreement?
Here are the key distinctions:
| Asset Purchase Agreement | Share Purchase Agreement |
| Buyer acquires specific assets | Buyer typically acquires all shares in the company (although the agreement may be structured for a partial acquisition) |
| Liabilities can be excluded/avoided | Buyer inherits liabilities of the company |
| Complex transfer process for each asset | Single transaction (transfer of shares) |
Choosing the right structure depends on the nature of the business, tax implications, and the buyer’s appetite for risk.
Regulatory considerations with an asset purchase agreement
Asset purchases often involve a range of regulatory requirements, depending on the nature of the business and the assets being acquired. Buyers and sellers must consider whether any sector-specific regulations or legal approvals apply.
For example, businesses operating in financial services, healthcare, energy, or transport may require approval from industry regulators.
Common regulatory considerations include:
- Licensing and permits: Ensuring the buyer obtains new licences or successfully transfers existing ones, which may require third-party consent or formal applications. Some licences are non-transferable and must be re-applied for – this varies by regulator.
- Data protection compliance: Where personal data forms part of the transferred assets (e.g. customer databases), both parties must comply with the UK GDPR and Data Protection Act 2018.
- Competition law: Larger transactions may need to be notified to the Competition and Markets Authority (CMA) to assess whether the deal could result in a substantial lessening of competition.
- Environmental regulations: Where property or manufacturing assets are involved, compliance with environmental obligations (such as waste management or hazardous substances regulations) is crucial.
Failure to address regulatory requirements can result in delays, fines, or even the unwinding of the transaction.
Contracts with suppliers and customers
Contracts form a significant part of many asset purchase agreements. Buyers will typically want to acquire the benefit of key supply, distribution, or customer contracts that are vital to the operation of the business. However, these contracts usually require third-party consent to be assigned to the buyer.
It’s important to:
- Review all relevant contracts during due diligence
- Identify any change of control or assignment clauses
- Obtain necessary consents from counter-parties
Failing to secure consent for material contracts could undermine the value of the acquisition.
Asset purchase agreements and TUPE
TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) is a critical consideration in many asset purchases, especially when a business or part of a business is being transferred as a going concern.
Under TUPE, employees are automatically transferred to the buyer on their existing terms and conditions of employment. Failure to comply with TUPE can result in costly claims for unfair dismissal, failure to consult, or breach of contract.
Both buyer and seller have legal obligations, including:
- Informing and consulting with affected employees
- Providing employee liability information
- Honouring contractual entitlements and redundancy provisions
TUPE does not apply in every asset purchase, but where it does, careful planning and advice are essential.
Valuing a business for an asset purchase agreement
One of the most important steps in negotiating an asset purchase agreement is determining a fair and accurate value for the assets being acquired. Unlike a share purchase, which often focuses on the overall enterprise value of a company, asset purchases require a breakdown of the value of individual assets.
Key considerations when valuing a business for an asset purchase agreement include:
- Tangible assets: Plant, machinery, stock, vehicles, and premises should be valued based on market or book value, taking into account wear and depreciation.
- Intangible assets: Goodwill, brand recognition, customer lists, and intellectual property can be harder to value and often require input from valuation experts.
- Contracts and revenue streams: The value of ongoing contracts and recurring income can significantly influence the overall price.
- Adjustments and apportionments: Parties may agree to adjust the price based on completion accounts or allocate values differently for tax efficiency.
A clear and agreed valuation helps avoid commercial disputes later in the process and ensures the asset purchase agreement properly reflects the commercial terms of the deal.
How our commercial insolvency solicitors can help
At Summit Law, we understand that no two transactions are the same. Our experienced insolvency solicitors offer clear, pragmatic advice tailored to your unique circumstances.
We can help with:
- Drafting and negotiating asset purchase agreements
- Conducting legal due diligence
- Advising on employment law and TUPE
- Liaising with HMRC on tax matters
- Securing third-party consents and regulatory approvals
- Resolving disputes arising from business sales
Whether you’re buying or selling, our priority is to safeguard your interests and deliver a smooth transaction from start to finish.
Asset purchase agreement FAQs
Yes. Asset purchase agreements are complex legal documents with significant financial and legal implications. A solicitor ensures the agreement is fair, legally sound, and protects your interests.
Yes. Once both parties sign, an asset purchase agreement is enforceable under UK law. It’s important to ensure the agreement accurately reflects your intentions before signing, as any failure to comply with its terms can result in legal action.
The terms “asset purchase agreement” and “asset sale agreement” are used interchangeably. They both refer to the same concept: purchasing and selling individual business assets.
Risks include incomplete due diligence, undisclosed liabilities, or failure to secure necessary consents. With the proper legal support, these risks can be minimised.
Absolutely. One of the key advantages of an asset purchase is flexibility. Buyers and sellers can agree on exactly which assets are included and excluded.
The sale of business assets are typically subject to VAT. However, a transaction may be exempt if the purchase qualifies as a transfer of a going concern (TOGC). It’s important to seek tax advice as part of the transaction.
It depends on the complexity of the transaction and the readiness of both parties. A straightforward asset sale might take a few weeks, while more involved deals can take several months.
Contact our insolvency solicitors today
If you’re considering buying or selling business assets, we’re here to help. Get in touch with Summit Law today for bespoke legal advice tailored to your commercial needs.
For your free consultation, please call us on 020 7467 3980 or complete our online enquiry form to discuss how we can help.