What are some of the potential risks of an asset purchase in a San Diego or Southern California business transaction? Why do so many asset purchase contracts wind up in litigation? Why is it important to seek the advice and counsel of the business transaction and acquisitions attorneys at the Watkins Firm if you are considering the purchase of some of the assets of an existing business?
The Primary Challenges Associated with an Asset Purchases
The primary challenges faced by the parties in an asset purchase transaction center on the passing of clear title to an asset, disclosure of the condition of the asset(s) to be purchased and unforeseen contingent liabilities associated with those assets. Unfortunately, recent Court decisions here in California and across the nation have exposed businesses in an asset purchase to litigation related to the debts and liabilities of the seller.
There are many valid legal arguments for attaching the buyer in an asset purchase to the woes of the seller. Creditors often attempt to argue that the buyer assumed the seller’s liabilities in either an expressed or implied manner. This is especially true when a de facto merger is attempted to be disguised as an asset purchase. Your Watkins Firm mergers and acquisitions attorney will work to protect your interests, build in protections against unforeseen risks and any attempt by the seller to defraud their own creditors.
Due Diligence is the Key to an Effective Asset Purchase
The potential risks of an asset purchase are the types of issues which our experienced acquisition attorneys thoroughly examine during the course of due diligence. Due diligence requires professional assessment of the assets to be purchased, underlying encumbrances or financing, condition of the asset(s) and any potential contingent liabilities which might threaten the asset purchase transaction down the road. Identification of the assets including serial or other identifying numbers, a statement of the condition of all assets by the seller and full disclosure of any known defects. If there are existing encumbrances or liens, it is important to begin negotiations with lenders and/or lien holders early in the process to maximize the opportunity for a successful transaction.
Managing the Potential Risks of an Asset Purchase
There are many precautions to consider when managing the potential risks of an asset purchase. Your Watkins Firm attorney works to ensure the seller can provide clear title. If the asset to be purchased is a customer base or existing service agreements it is important to preserve existing Goodwill while identifying any past, present or future issues or imperfections which might interfere with the successful transfer of the asset or its value in the future, as well as any contingent liabilities.
The Watkins Firm works to make sure any asset purchase agreement protects our client’s interests. If our client is the buyer, we work to indemnify our client from any potential successor liability claims or non-assumed obligations. Cash transactions provide additional protections and in some cases insurance may be required to extend need protections.
The San Diego business attorneys at the Watkins Firm has represented buyers and sellers in the San Diego business community during asset purchase transactions for almost four decades. Our work is based upon thorough due diligence, effective contracts and proven strategies which help with managing the potential risks of an asset purchase while facilitating a smooth transaction. We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
