Key Insight
The APA is where the LOI becomes binding. Everything you negotiated in the letter of intent gets translated into enforceable legal terms here — and every ambiguity in the LOI becomes a negotiation at the APA stage.
Key Components of an APA
Purchased assets schedule: An explicit list of every asset being acquired — equipment, vehicles, inventory, customer lists, contracts, intellectual property, phone numbers, domain names. If it's not on the list, the buyer doesn't get it.
Excluded assets: Assets the seller is keeping — typically cash, certain receivables, personal property, and assets unrelated to the business.
Assumed liabilities: The specific liabilities (if any) the buyer is taking on. In most SMB asset sales, buyers assume minimal liabilities — no pre-closing debt, no pending lawsuits, no unfunded obligations.
Purchase price and allocation: Total price and how it's allocated among asset classes (inventory, equipment, goodwill, covenants not to compete). Allocation has tax implications for both parties.
Representations and warranties: Seller's factual representations about the business — financials are accurate, no undisclosed liabilities, no pending litigation, contracts are in good standing. Breaches create indemnification claims.
Indemnification provisions: Who owes what to whom if representations prove false after closing. Includes caps, baskets, and survival periods.
Closing conditions: What must be true on the closing date — financing secured, key employee agreements signed, landlord consent obtained, licenses transferred.
APA vs. Stock Purchase Agreement
In an asset sale, the APA is the primary document. In a stock sale, the equivalent is a Stock Purchase Agreement (SPA) — which transfers ownership of the entity itself rather than its individual assets.
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