Key Advantages of an Asset Purchase

An asset purchase allows buyers to acquire selected assets and liabilities of a business instead of taking ownership of the entire entity. This structure offers several advantages:

• Selective liability assumption: Buyers can choose which liabilities to accept, avoiding exposure to debts, litigation, or compliance issues that are not explicitly included.
  
• Tax benefits: Buyers often receive a step-up in the tax basis of acquired assets, creating depreciation and amortization deductions that reduce taxable income over time.
  
• Simplified approvals: Unlike stock purchases that may require unanimous shareholder consent, many asset deals only need approval from the seller’s management or board.
  
• Flexibility: Buyers and sellers can negotiate which assets transfer, which contracts are assigned, and how obligations are handled post-closing.
  

This flexibility makes asset purchases especially attractive to startups and small businesses looking to expand without inheriting unnecessary risks. Virtual Counsel guides clients through structuring asset deals to maximize these advantages.

Liabilities in an Asset Purchase

In general, liabilities do not automatically transfer in an asset purchase unless expressly assumed. Common excluded liabilities include:

• Outstanding loans or debts
  
• Pending lawsuits
  
• Unpaid taxes
  
• Unfavorable supplier or lease contracts
  

However, some liabilities may still transfer by operation of law, including:

• Environmental obligations
  
• Successor liability for product defects
  
• Certain employee-related liabilities
  

Thorough due diligence and careful drafting of the purchase agreement are critical to limiting exposure.

Valuing Assets in an Acquisition

Asset valuation typically uses one or more of the following approaches:

• Fair market value: Based on comparable market transactions
  
• Income approach: Based on projected cash flows and earning potential
  
• Cost approach: Based on replacement or reproduction cost
  

For many startups, intangible assets such as intellectual property, customer lists, and goodwill play a major role in valuation. Working with financial advisors and legal counsel ensures valuations align with business goals.

Due Diligence in an Asset Purchase

Due diligence verifies the quality, ownership, and value of assets before closing. Key areas include:

• Financial review: Confirm accuracy of financial statements and asset valuations
  
• Legal review: Ensure clear title to assets and enforceability of contracts
  
• Regulatory review: Confirm compliance with industry-specific requirements
  
• Operational review: Assess physical assets, IT systems, and supply chains
  
• Employment review: Evaluate workforce needs, contracts, and potential disputes
  

Virtual Counsel provides due diligence support to help uncover risks and protect buyers during negotiations.

Contracts, Licenses, and Approvals

In an asset purchase, key contracts and licenses may not transfer automatically. Buyers must identify:

• Contracts with assignment clauses requiring landlord, customer, or supplier consent
  
• Licenses and permits tied to specific regulatory requirements (healthcare, finance, telecom, etc.)
  
• Intellectual property rights such as trademarks and patents that must be assigned properly
  

Failing to secure these assignments or approvals can jeopardize business operations post-closing.

Impact on Employees and Agreements

Employees are not automatically transferred in an asset purchase. Buyers must decide which employees to retain and issue new employment agreements. Considerations include:

• Compliance with labor laws such as the WARN Act
  
• Continuation of benefits, tenure recognition, and compensation
  
• Non-compete and confidentiality agreements for key personnel
  

Clear communication with employees helps ensure a smooth transition. Virtual Counsel assists with drafting new agreements and ensuring compliance with employment regulations.