The Smart Way to Acquire or Merge into an Ohio Business and the Difference Between an Asset Purchase Agreement and a Stock Purchase AgreementThere are generally two ways to purchase a business in Ohio: (1) purchase all (or a majority stake) of the stock of the company; or (2) purchase the assets of the company. Most of the time it is smarter to purchase the assets of the existing business, as is further described below, through the tool of an Asset Purchase Agreement.
An Asset Purchase Agreement is an agreement between a buyer and a seller of a business as to the terms and conditions of the sale of the business. The difference between a Stock Purchase Agreement and an Asset Purchase Agreement is that with a Stock Purchase Agreement, the business simply undergoes a change in ownership with no actual change to the business itself. With an Asset Purchase Agreement, the buyer of the business is only purchasing the assets of the business. With an Asset Purchase Agreement the buyer can basically just pick and choose the good stuff from the business that they are buying and leave out what they don't want. Usually the types of assets that are purchased are the accounts receivable, customer lists, goodwill, equipment, inventory, intellectual property, trade names, trademarks, trade secrets, et cetera. For most types of businesses, it makes the most sense to purchase the business through an Asset Purchase Agreement. A Stock Purchase Agreement may make more sense for businesses with a lot of real estate holdings and some other types of niche businesses. With an Asset Purchase Agreement, the buyer can purchase only the good stuff and leave out all the bad stuff.
A large part of an attorney's role in drafting all of the documents necessary for the purchase and sale of a business is in protecting their clients from potential liabilities, known and unknown at the time of the transaction. Businesses can get embroiled in litigation for all types of reasons and the buyer of a business generally doesn't want anything to do with those potential liabilities or potential lawsuits. So a good attorney for your business purchase will draft the Asset Purchase Agreement so that all of the big potential liabilities stay with the seller after the sale and that the buyer only gets the things that they want out of the sale. With a Stock Purchase Agreement you take the business as-is, with all liabilities and faults.
Incidental Agreements That Go Along With Asset Purchase AgreementsThere are a few other documents that usually go along with an Asset Purchase Agreement. The whole negotiation over the purchase and sale of a business is usually formally entered into with a Letter of Intent. Once both parties sign the Letter of Intent, then the purchaser usually has a chance to do some due diligence accounting and inventory investigation and the seller usually confidentially provides the buyer with a chance to inspect the books and the business itself. Once both sides have done their preliminary due diligence, then the formal offer, purchase price, terms of purchase, and sale of the business are outlined in the Asset Purchase Agreement.
The other agreements that customarily come along with an Asset Purchase Agreement are a confidentiality agreement, non-compete agreement, and non-solicitation agreement. The confidentiality agreement is pretty straightforward in keeping the details of the negotiation and sale confidential. The non-compete agreement provides protection for the buyer of the business that prevents the seller from selling the business from going right out and starting a new business that is directly competitive to the freshly purchased business. The non-solicitation agreement provides protection to the buyer of the agreement so that after the sale of the business is complete, that the seller does not then solicit and try to steal the customers of the business. For small businesses, and especially in certain niche areas, the customers are very loyal to the individual business owners themselves. In those types of situations, it would be relatively easy for the former owners to poach the customers with whom they already have established relationships.
Structure of an Asset Purchase AgreementAn Asset Purchase Agreement is usually structured as follows:
-Initial terms of the basic agreement, such as purchase price, introduction of the parties, etc.
-Representations and Warranties
-Procedure and conditions required prior to closing the deal
-Requirements at closing ceremony
-General or boilerplate provisions
-Finally, the most important part - the Signatures