What is an asset purchase agreement and why is it important?

An asset purchase agreement is a contract which is used to transfer and assign certain assets and liabilities between the company, a sole trader or LLP, and the buyer. And that allows the buyer to cherry pick what they want and to leave behind that which they do not. For example, a buyer is unlikely to take on the liability of past advice for a client bank they bought from a sole trader, whereas they’re more likely to do with a share purchase agreement.

The tax position and the net consideration are likely to be significantly less favourable under a asset, under an asset purchase compared to a share purchase, agreement. If you have staff, then the Transfer of Undertakings (Protection of Employment) Regulations, otherwise known as TUPE, applies, and is designed to protect employees’ rights from the transfer of the business. The fundamental principle of TUPE is that, if a seller is buying the assets of the business as a going concern, then the employees engaged in that business of the going concern are deemed to be transferred with it automatically.

And, on that basis, the buyer and the seller will have to liaise early to ensure that you’ve informed and consulted the affected employees. Good legal and good tax advice is vital here.