Asset Sales Contract

General Purpose. This form is designed to be used for simple to moderately complex asset sales between individuals and small businesses. This form is not designed for sales involving real estate; however, it could be used for sales of unimproved real property (i.e., raw land).

Features of this form. This form contains the following features:

1. It allows for up to 3 different sellers and 3 different buyers to be parties to the transaction;
2. It breaks up the purchase price for the asset(s) into three components: (a) down-payment, (b) payments to be made after execution of the contract (i.e., installment payments), and (c) debts of seller assumed by buyer;
3. Allows you to state an interest rate for past-due payments called for under the contract;
4. Allows for creation of warranties by the seller and buyer such as clean title to the property being sold;
5. Allows for addition of noncompete clause to contract prohibiting seller from competing with buyer for a stated period of time after the sale within a defined geographic boundary.
6. Select state law to control contract;
7. Name suit location should one later become necessary;
8. Provides for indemnification (or reimbursement) to any non-breaching party for attorneys fees and out-of-pocket expenses resulting from breach of the contract.

Seller or Buyer Type. The preamble to our contract form and the signature block at the end of the contract must be customized if the seller or the buyer is other than an individual; therefore, it is necessary for you to indicate the type of seller or buyer in response to the questionnaire. Also, these are important distinctions to make for the enforceability of your contract. Do not guess! Go back to the original documents that organized the buyer or seller to determine whether seller or buyer is a corporation, limited liability company, general partnership, limited partnership, etc. "General partnerships" are all partnerships other than those that are "limited partnerships". A limited partnership is a creature of state statute and must follow certain statutes and, in most cases, make filings with the state to attain the status of a "limited partnership". The salient feature of a "limited partnership" is that at least one of the partner's liability or exposure for the partnership debts is limited to that partner's investment in the partnership as opposed to the liability of the general partners which is unlimited.

Note: "LLC" stands for "limited liability company" which is a cross-bred between S Corporations and partnerships allowed by the laws of most states. By statute, a limited liability company must have the initials "LLC" or "LC" in its name.

Here are links to additional information concerning the different types of business entities:

Summary by the Missouri Bar Association of the various types of business entities

"Choice of Entity: Corporations vs. LLCs", by John Steel

Warranties and Representations. These are facts over which each party gives a promise to the other side. In the case of the seller, the most common warranties are that the seller has good and clear title to the assets being sold and that seller has disclosed all known defects in, or damage to, the assets being sold. Without these warranties from a seller, the buyer generally has no recourse against the seller should it later turn out that the assets have defects or damage that was undisclosed to the buyer by the seller at the time of the sale.

Known and Unknown Defects. Our form gives you two choices in regard to the important warranty of the assets being free from defects and / or damage. The first choice is for the seller to warrant that the assets are free from all defects and damage known to seller other than those defects and damage disclosed to the buyer in writing prior to the sale. This is a weaker warranty than the second option which is for the seller to warrant that the assets are free from all defects and damage (other than those disclosed in writing prior to the sale) regardless of whether or not the damage or defect is known to the seller at the time of the sale. At first glace this difference may not seem significant; however, in practice it is. To enforce the first warranty in court, the buyer needs to prove not only that the defect or damage existed prior to the time of the sale but, also, that the seller knew about the defect or damage prior to the sale. "Knowledge of the seller" is a hard element to prove and, when this is a necessary element of the case, weakens the value of the warranty to the buyer substantially.

Seller not insolvent. This means that the value of seller's assets exceed the value of seller's liabilities at the time of the sale. The importance of this fact is that an asset sale may be voidable under state law or bankruptcy law if the seller was insolvent at the time of the transfer.