The purpose of the Asset Purchase Agreement (APA) or Business Purchase Agreement is to set out the assets that are being bought and sold and the price payable for each asset class, that is, the total purchase price is “apportioned” between each asset class. One of the reasons for this is capital gains tax. Some assets are chargeable to tax, others not. The price payable for each class is negotiated between the buyer and the seller.

The BSA and APA also set out the way in which any property is transferred, whether freehold or leasehold. In a share purchase agreement (SPA) this is unnecessary because the property stays in the company.

Next, the BSA and APA deal with the transfer of employees under the Transfer of Undertakings protection of Employee Regulations – known as TUPE. It is important to remember employees pass across to the buyer of a business automatically. This, of course, requires careful thought in all businesses and close attention is paid to the employees, their age and their length of service during due diligence.

Finally, the buyer will want the seller to warrant the accuracy of the information  given. The buyer may also require indemnities for specific liabilities.

The structure of the SPA is a little different. As the assets stay in the company the body of the SPA is shorter, but the extent of the warranties covering both the business, the assets and the tax affairs of the company is considerably longer.

See also our FAQ on Warranties.