Asset Purchase Agreement
For Informational Purposes Only
A seller-favorable asset purchase agreement for simultaneous sign-and-close transactions — covering purchased assets, excluded assets, assumed and excluded liabilities, IRS Form 8594 purchase price allocation, comprehensive representations, indemnification with tiered survival, and post-closing covenants including non-competition.
What This Document Does
An asset purchase agreement is one of the two primary structures for acquiring a business — the other being a stock or equity purchase. In an asset purchase, the buyer selects specific assets to acquire and specific liabilities to assume, while everything else stays with the seller. This structure gives the buyer more control over what it is purchasing and greater protection against unknown liabilities, while giving the seller the ability to retain assets and liabilities it does not want to transfer.
This template is designed for simultaneous sign-and-close transactions — the parties sign the agreement and close the transaction at the same meeting, eliminating the need for interim operating covenants and closing conditions. It is drafted from the seller’s perspective, meaning it includes seller-favorable provisions such as knowledge qualifiers on representations, reasonable indemnification caps, and defined survival periods. The buyer’s counsel will typically negotiate to expand representations, extend survival, and increase indemnification coverage.
Why Startups Need This
Startups encounter asset purchases from both sides. A growing startup may acquire a smaller competitor’s product line, customer base, or technology assets without wanting to assume the target’s entire liability profile. Conversely, a startup’s founders may sell the company’s assets — its software, contracts, brand, and customer relationships — when a full equity sale is not feasible because of complex cap table issues, outstanding liabilities, or tax considerations.
Asset purchases are particularly common in startup acqui-hires (where the buyer wants the team and technology but not the corporate entity), distressed sales (where the buyer wants clean assets without successor liability), and product-line acquisitions (where the buyer wants a specific product or business unit rather than the entire company). In each scenario, the precision of asset and liability selection is critical — a poorly drafted asset purchase agreement can inadvertently transfer liabilities the buyer did not intend to assume or leave the seller with assets it cannot monetize.
Key Provisions Explained
Asset and Liability Selection
The agreement defines purchased assets across eleven enumerated categories (tangible assets, contracts, IP, permits, receivables, inventory, records, goodwill, claims, prepaid items, and customer data) and excluded assets across nine categories (cash, tax refunds, insurance proceeds, excluded contracts, corporate records, benefit plan assets, personal property, intercompany receivables, and specified excluded items). Similarly, assumed liabilities are limited to three defined categories while excluded liabilities enumerate eleven categories the buyer does not assume. This dual-list approach — specifying both what transfers and what does not — reduces the risk of gaps or ambiguities.
IRS Form 8594 Purchase Price Allocation
In an asset purchase, the allocation of purchase price among asset classes has significant tax consequences for both parties. The IRS requires both buyer and seller to file Form 8594 (Asset Acquisition Statement) reporting how the purchase price was allocated across seven asset classes. This template requires the parties to agree on an allocation within a defined timeframe, use an independent accountant if they cannot agree, file consistent allocations, and file supplemental statements if the consideration is later adjusted. Inconsistent allocations invite IRS scrutiny and can result in adverse tax consequences for both parties.
Tiered Indemnification
The indemnification structure uses tiered survival periods — general representations survive for a defined period (typically 12–18 months), fundamental representations (organization, authority, title, taxes) survive longer or indefinitely, and tax and environmental representations survive through the applicable statute of limitations plus extensions. The agreement establishes a deductible basket (claims below the threshold are not indemnifiable), an aggregate cap (maximum total indemnification), and carve-outs for fraud, fundamental representations, and specific categories where the cap does not apply. Escrow serves as the first or exclusive source of recovery, and indemnification is the exclusive post-closing remedy except for fraud.
Employee Transition
In an asset purchase, employees do not transfer automatically — the buyer must offer employment to the employees it wants. The agreement establishes the mechanics for this process: which employees receive offers, the terms of those offers, the treatment of accrued benefits, and the allocation of pre-closing and post-closing employment liabilities. This is one of the most operationally complex aspects of an asset purchase, particularly regarding benefit plans, accrued PTO, COBRA obligations, and WARN Act compliance.
Non-Competition and Non-Solicitation
The seller’s non-compete is a critical buyer protection in an asset purchase — without it, the seller could immediately start a competing business using the knowledge, relationships, and goodwill it developed over years. The template includes non-competition, non-solicitation of customers, and non-solicitation of employees covenants with defined scope, territory, and duration. It also includes a blue-pencil provision allowing a court to narrow overly broad restrictions rather than invalidating them entirely, reflecting the enforceability considerations that vary significantly by state.
Emerging Provisions (2025–2026)
Successor Liability and Bulk Sales
While asset purchases generally do not transfer liabilities that are not expressly assumed, several legal doctrines can impose successor liability on the buyer: the continuation-of-business doctrine, the product-line exception, fraudulent transfer theories, and statutory successor liability for taxes, environmental obligations, and employee claims. Most states have repealed their bulk sales laws (UCC Article 6), but a few retain them. This template includes a bulk sales waiver with seller indemnification, but counsel should verify the applicable law in every relevant jurisdiction because a bulk sales violation can give the seller’s creditors direct claims against the purchased assets.
Data Assets and Privacy Transfer
Customer data is often one of the most valuable assets in a modern business acquisition, but transferring personal data in an asset sale creates privacy compliance obligations that did not exist a decade ago. The seller’s privacy policies may restrict data transfer, individuals may have rights to opt out of the transfer, and the buyer may need to provide notice or obtain consent depending on the jurisdiction and data type. The template addresses data transfer as a specifically identified asset category and requires the seller to represent that its privacy policies and practices permit the contemplated transfer.
How to Use This Template
1. Build the asset and liability schedules first. The schedules are the heart of the deal. List every asset being purchased and every liability being assumed with specificity. If it is not on the schedule, it does not transfer.
2. Complete the purchase price allocation. Use Schedule 4.2 to allocate the purchase price across the seven IRS Form 8594 asset classes. Both parties must file consistent allocations, so agree on this before closing.
3. Identify nonassignable assets. Some assets — permits, licenses, contracts with anti-assignment clauses — cannot be transferred without third-party consent. Identify these early and begin the consent process before closing.
4. Plan the employee transition. Decide which employees will receive offers, coordinate timing, and ensure compliance with WARN Act, COBRA, benefit-plan, and state employment requirements.
5. Negotiate indemnification in the context of deal size. Baskets, caps, survival periods, and escrow amounts should be proportionate to the deal value and the specific risks identified in due diligence.
Related Forms
This template is provided by Montague Law for informational and educational purposes. It does not constitute legal advice and does not create an attorney-client relationship. Asset purchase transactions involve tax allocation, successor liability, bulk sales, employee transition, contract assignment, regulatory approvals, and other considerations that vary significantly by jurisdiction, industry, and transaction structure. Consult qualified legal and tax counsel before using this template. Montague Law is a Florida-based law firm focused on corporate, M&A, venture capital, and technology transactions.