How can you reduce or eliminate a lot of the risk of a San Diego asset purchase and how can the experienced business attorneys at the Watkins Firm protect your interests while helping you to complete a successful business transaction?  An asset purchase allows you to acquire the equipment, real property, inventory, machinery or customers of a business without having to purchase the company itself.  The challenges associated with an asset purchase include, but are not limited to:

• Clear title
• Thorough due diligence
• Condition of assets to be acquired
• Representations and warranties
• Assumption of liabilities/financial instruments/UCC Forms
• Tax implications of the transaction

The asset purchase contract should be a carefully constructed, well-crafted document which provides significant protections to the buyer while capturing the benefit or the bargain each party expects to receive.  This should include the transfer of title to all assets, a comprehensive inventory and unique identification of each asset (when available) as well as a well-crafted contract which guides the transaction from the initial agreement through due diligence and ultimately to the transfer of title and completion of a successful transaction.

What steps do you take to reduce or eliminate a lot of the risk of a San Diego asset purchase?  The primary risk in any acquisition usually lies in any unreported or undisclosed encumbrance on the asset itself.  For example, if you wished to purchase a specialized truck from another business our attorneys must ensure the asset is not pledged as collateral or otherwise encumbered through another financial obligation.  It is important to engage in thorough due diligence to assess the condition of the asset to be acquired, the manner in which it was acquired and any potential liabilities associated with the asset.

Watkins Firm attorneys ensure comprehensive protections including a thorough disclosure by the seller known as “representations and warranties” are contained within the asset purchase contract.  An effective asset purchase contract must also provide for the resolution of any disputes or liabilities which might arise and the process for resolving these issues such as mediation or arbitration.

Pro-Tip: “The most common mergers and acquisitions transaction is the asset purchase.  What are some things you need to know about transferring the legal title to a business asset?  Well, first of all, the reason you want to do an asset purchase is because you’re buying the actual assets they’re being described, and they’re being sold to you in a manner where you don’t have to worry about all the other problems or secrets this corporation and its shareholders may have. An asset purchase will often entail an escrow. We help create an escrow for the company and send out a notice that you’ve bought this company’s assets.

And if you’re a creditor, you have 60 days to come and make a claim. Otherwise, after that, as the buyer you will own not only the equipment you’ll own any associated Goodwill, you’ll own the name, the IP, whatever it is that is described and established in the asset purchase contract, free and clear.

When you buy the shares of a company, then you end up in a situation where you’re not buying the assets, you’re buying, whatever the shares have power over, and that can be complicated and hard to understand or even know what you’re getting. So from that point of view, and also for the tax advantages of depreciating assets and other things, most business people prefer an asset purchase.

So when an asset is encumbered, it is the responsibility of the seller to disclose that. And how do you handle when there are UCCS and encumbrances against an asset?

That actually happens a lot and we have to provide for what we call ‘carve outs’ or ‘clauses’ in the agreement where the money comes in, goes into an escrow account, whether it’s the attorney’s trust account or an actual commercial escrow company, like Chicago title first American title. And then you put escrow instructions in and say, ‘okay, when the money comes in, the escrow officer is instructed to pay off this creditor or that creditor. Or, you also have a carve out, or, you’ll enter into a new agreement with the vendors or the creditors to keep doing business with them. So all those types of things need to be considered and included when you do an asset purchase.” – Dan Watkins, Founding Partner

Reduce or eliminate a lot of the risk of a San Diego asset purchase by working with the Watkins Firm.  Draw on our attorney’s experience, legal skill, due diligence and a well-crafted asset purchase contract. We invite you to review our podcast Episode 13 – Mergers and Acquisitions as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.