What Does Asset Purchase Agreement (APA) Mean?An asset purchase agreement (APA) is a definitive agreement that finalizes all terms and conditions related to the purchase and sale of a company's assets. It is different from a stock purchase agreement (SPA) where company shares, including title to the assets and liabilities, are being bought/sold.
An APA covers the following sections:
- Interpretation: Provides the definitions for all major terms used in the overall body of the agreement
- Purchase and sale of stock: Itemizes the purchase price, any purchase price adjustments, purchase price allocation for tax purposes between seller and buyer and dispute resolution mechanisms
- Representations and warranties of the seller and buyer: Provides all statements that the seller and buyer are signing off to be true
- Matters related to employees: Provides terms on how employee benefits and any accrued bonuses should be handled post transaction
- Indemnifications: Provides details of all indemnifications for any costs that may arise post transaction as a result of conditions that existed prior to the deal closing
- Tax matters: Specifies any special tax treatment entitles to the seller or buyer