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Asset Purchase Agreements: Understanding Covenants and Their Role in the Agreement

by | Jul 14, 2019

An Asset Purchase Agreement (APA) is a document that solidifies and makes legal an agreement between a buyer and a seller. A solid APA outlines and finalizes terms and conditions related to the purchase and sale of tangible or intangible assets. APAs are legal instruments most often used to transfer ownership of assets, or partial assets, in a company.  APAs may also be used to cover the partial transfer of assets in a company when the owner is not relinquishing the company in totality. Some of the most common assets that are included in partial transfers are:

  • Stock & Shares
  • Physical Premises
  • Equipment, such as machinery

A standard Asset Purchase Agreement is comprised of a series of articles that finalize the details of the Agreement, these include, but are not limited to:

  1. Preamble & Recitals
  2. Definitions
  3. Transaction Details
  4. Seller Representation & Warranties
  5. Buyer Representation & Warranties
  6. Covenants
  7. Closing Conditions
  8. Indemnifications
  9. Terminations
  10. General Provisions

While all of the aforementioned articles hold their own importance, the Covenants are often the backbone of Asset Purchase Agreements because they cover expectations for circumstances—like what is allowed during the investigatory process and during the gap period between the seller’s interest and actual purchase. (This is also known as the Access and Investigation Covenant.) Other covenants you may find in an Asset Purchase Agreement under Article 6 include provisions detailing:

  • Confidentiality
  • Public Notice of Acquisition
  • Financial Statements
  • Financing
  • Communications with Current Customers and/or Employees
  • Fraudulent Conveyance
  • Non-competition
  • Seller’s responsibility to Creditors
  • Use of Trademarks, Patents, and Copyrights
  • Mail Handling

It should be noted that while every Asset Purchase Agreement will include some of the same provisions, they can also include other Articles specific to other, relevant topics, such as taxes and employment & labor.=

Contact Us It is imperative that your Asset Purchase Agreement be prepared and reviewed with a fine-toothed comb by a qualified business law attorney. Doing so will not only ensure that your transaction goes smoothly, but it will also clarify the terms of the transaction and greatly decrease the chance of litigation should any misunderstanding or dispute occur.

If you are considering buying or selling assets, property, or acquiring a business, you must have an attorney experienced in preparing purchase agreements to protect your best interests, and to make sure the process moves smoothly. The attorney team at Campbell law can do just that. Give us a call 305-460-0145.

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