asset purchase agreement assignment

Asset Purchase Agreement

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What is an asset purchase agreement.

An asset purchase agreement, also known as an asset sale agreement, business purchase agreement , or APA, is a written legal instrument that formalizes the purchase of a business or significant business asset. It details the structure of the deal, price, limitations, and warranties.

Due to the legal and financial implications associated with an asset purchase agreement, hire corporate lawyers to help you draft this critical document, or negotiate your deal. They will ensure that your agreement is fair and enforceable under the law.

What Is an Asset Purchase Deal?

An asset purchase is when a buyer agrees to purchase certain assets - and sometimes liabilities - from a company. While a buyer in an asset purchase is typically more focused on the assets they are buying, they can also acquire the liabilities of the business in some circumstances. Because of this, the buyer inherits the benefits and risks associated with the acquired assets or business.

Asset purchases can include the buying of:

• Intellectual property

Upon completion of an asset purchase, the ownership is transferred from the old entity to the new one. In general, there are protocols and formalities that surround asset purchases.

Asset Purchase Agreement Templates

When Would You Use an Asset Purchase Agreement?

You would use an asset purchase agreement for a variety of situations. These contracts are advantageous when buyers and sellers want flexibility over the transaction. Additionally, the APA may be a component of a more significant transaction, such as a joint venture (JV) or the sale of a business entity .

How Does an Asset Purchase Work?

When a business wishes to purchase assets from another, it notifies the selling company of its intent to buy. This notification is also known as a letter of intent . A letter of intent signifies the start point of the transaction during negotiation whereby both parties agree on a price, terms, deal structure, and other details of the transaction.

The following considerations should be included in a Letter of Intent:

• Value exchanged for the asset purchase
• Anticipated timeline for negotiations and deal structuring
• Escrow account requirements if any
• Exclusivity to the buyer
• Scope of key warranties and guarantees
• Prohibited buyer and seller activities
• Termination or modification clauses
• Other pertinent details

Your letter of intent can be however long or short it needs to be and according to parties involved. However, seek out advice from a lawyer with experience in this area to help you draft this document since it carries specific legal and financial implications. They can also help you work out your asset purchase agreement’s details when the transaction moves forward.

Parts of an Asset Purchase Agreement

Whether you wish to buy or sell an existing business or its assets, you will want to govern the transaction with an asset purchase agreement. Depending upon the details of the transaction, the length of your document will vary. However, the basic structure of an asset purchase agreement is similar regardless of the specifics.

Here are parts of an asset purchase agreement that you may want to include in your document.

1. Recitals

The opening paragraph of an asset purchase agreement includes the buyer and seller’s name and address as well as the date of signing. You should also add an acknowledgment of the agreement on behalf of both parties.

2. Definitions

Identify keywords that your document will use several times and define them. For example, rather than having to describe the terms of the sale repeatedly, you can collectively refer to it as the “Sale” uniformly throughout the APA. Definitions of specific words will help avoid confusion in the future.

3. Purchase Price and Allocation

In this provision, you should describe what the seller is selling to the buyer as well as any exclusions that apply. Detail the structure of the deal, including price, payment terms, and liabilities the buyer assumes. Since this section may be lengthy, it is not uncommon to shift long lists to an attachment.

4. Closing Terms

Closing is when the transaction is formalized. The closing terms should define what is required to complete the business or business asset’s purchase or sell, including any terms and contingencies.

5. Warranties

There are promises that both parties will likely make to each other. Warranties are the representations associated with the purchase. If the seller makes unfounded guarantees, this section is critical for the buyer to pursue legal redress.

6. Covenants

Covenants are sub-agreements under the asset purchase agreement. For instance, the seller may promise to not compete with the buyer for a specific period in a geographic location. Depending upon the transaction, the covenants will vary widely.

7. Indemnification

Indemnification protects buyers and sellers in the event of a legal dispute. It describes the financial damages that one party pays to the prevailing party and under what circumstances, including attorneys’ fees, court costs, and more.

8. Governance

There are numerous bodies of law that may apply to contracts. Your asset purchase agreement should indicate which state, country, or international laws govern your contract for legality purposes or in case a dispute arises.

9. Dated Signatures

No contract is complete without dated signatures from both parties. Ensure that you leave a dateline for each signature since the asset purchase agreement could be signed on different dates. You do not need to get the document notarized.

Your asset purchase agreement will be unique to your situation. Since these transactions tend to be complicated and work in conjunction with other existing contracts, such as partnership agreements , hire transactional lawyers to assist you in this process.

Advantages and Disadvantages of an Asset Purchase Agreement

If you are considering an asset purchase agreement to formalize the sale of a business or asset, you should consider the pros and cons before deciding to use this type of document. Review the advantages and disadvantages below.

While there are downsides to an asset purchase agreement, there are several distinct advantages, including:

• You can define how you want the transaction to be structured
• Ownership over specified assets is only transferred, which can mitigate legal issues
• You avoid problems with minority shareholders
• Assets can be sold at fair market value (FMV)

The advantages of an asset purchase agreement are critical for some businesses. Ultimately, the most significant advantage is that it provides reassurance and an understanding among the parties involved while protecting their legal rights.

Disadvantages

Although the positive aspects of an asset purchase agreement are numerous, there are a few disadvantages associated with asset purchase agreements, including:

• You will need to engage in the retitling process, which can be costly
• Employment contracts may need review and renewal
• Specific permits and licenses may not transfer to the buyer without reapplication
• Assets sold well below FMV may result in insufficient capital for the seller

The decision to use an asset purchase agreement vs. other legal instruments, such as a stock purchase agreement , should be made in conjunction with a legal professional with experience in this area. Otherwise, you could make legal mistakes that affect you later on.

Who Drafts an Asset Purchase Agreement?

Corporate lawyers are the legal professionals who are best-suited to draft an asset purchase agreement. When licensed to practice in your state, they can offer legal advice, help, and guidance with regard to making decisions, structuring agreements, and protecting your legal rights during the transaction.

Ensure that you speak with corporate lawyers as early on in the process as possible. They can do an intake of your objectives, provide recommendations, and draft all documents that are in accordance with local, state, and federal contract laws.

See Asset Purchase Agreement Pricing by State

• Connecticut
• District of Columbia
• Massachusetts
• Mississippi
• New Hampshire

North Carolina

• North Dakota
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• West Virginia

What Needs to Happen Before an Asset Purchase Closing?

The conditions for a transaction’s completion vary according to the terms. However, those terms typically include conditions, such as payment, approval, and any necessary changes or repairs before the sale. Determine whether you require closing price adjustments as well.

You can engage in these adjustments in response to changes in interest rates, balance sheet differences, working capital, amortization, and the value of net assets. Decide who’s in charge of taxation and how they will classify the transaction. Take care of as many of the legal and financial aspects as possible.

Asset Purchase Agreement Sample

ASSET PURCHASE AND SALES AGREEMENT

THIS AGREEMENT (the “Agreement”) is made effective this [DATE] by and between [SELLER], (the “Seller”) and [BUYER] (the “Buyer”), referred to collectively as “the Parties.”

The Parties have reached an agreement regarding the Buyer’s purchase of the [ASSET]. The Parties agree as follows:

• Seller . [SELLER], an individual residing in [STATE] with the following address:

_______________________________

• Buyer . [BUYER], is individual residing in [STATE] with the following address:
• Purchase and Sale . Subject to the terms, covenants, and conditions contained in this Agreement, and based on the Seller’s representations and warranties contained herein, on the Closing Date (as defined below), the Seller shall sell, transfer, convey, assign, and deliver to Buyer, and the Buyer shall purchase, acquire, and accept from the Seller:

[ASSET] including, without limitation, all of the assets listed on Exhibit A attached and incorporated by reference (collectively, the “Purchased Assets”), all as the same shall exist at 12:01 A.M. on the Closing Date.

• Consideration . The total purchase price (the “Purchase Price”) for the Purchased Assets shall be [PURCHASE PRICE]. Buyer will deliver the Purchase Price, to [ESCROW] prior to the Closing Date.
• Closing . The closing (the “Closing”) within [CLOSING DAYS] days of the Effective Date of this Agreement (the “Closing Date”), or at such other time as the Parties may agree upon in writing, whereupon the documents, instruments, and other items referred to herein will be delivered by the Parties.
• Contingency . The Buyer’s obligations to close shall be contingent upon:
• Seller’s ability to deliver, at the Closing, clean title to the Purchased Assets and all of the documents and instruments described herein, in accordance with the terms and conditions contained herein;
• Seller’s representations and warranties contained herein being complete, true, and accurate as of the Closing Date;
• Satisfaction of all Due Diligence by Buyer. Such Due Diligence will include Buyer’s opportunity to review the business, properties, affairs, prospects, books, and records related to the Purchased Assets, and to obtain information that it deems relevant from the management, bankers, lawyers, accountants, and other consultants of Seller. Buyer and their representatives shall also have full access to all personnel, computers, books, and records related to the Purchased Assets, and Seller shall furnish to Buyer such financial and other data and information as is requested for the completion of the Buyer’s investigation of the Purchased Assets. In the event the transactions herein contemplated do not take place, Buyer agrees to keep confidential and not to use for any purpose any proprietary confidential information provided to Buyer by Seller, excluding any information which is otherwise known by or becomes known to Buyer outside of its due diligence investigation of the Purchased Assets, or is made public.
• Deliveries by Buyers . Buyer shall: a. Instruct the escrow agent to disburse the funds held in escrow to Seller; and b. Such other documents, instruments, and items as shall be reasonably required to consummate the transactions contemplated herein, consistent with the terms of this Agreement.
• Deliveries by Seller . At Closing, Seller shall deliver to Buyer the following: a. All logins, documents, instruments, and transfer paperwork necessary to transfer the Purchased Assets; and b. Such other documents, instruments, and things as shall be reasonably requested by Buyer consistent with the terms of this Agreement.
• Migration Process . At Closing, Seller shall begin the process to transfer possession of the Assets to Buyer (the “Migration Process”). Seller shall use all commercially reasonable best efforts to complete the Migration Process as quickly as possible. From the Closing, and throughout the Migration Process, Seller shall: (a) maintain the Purchased Assets in the ordinary course, consistent with past practice, and not take any action outside of normal business practices without Buyer’s prior written consent; and (b) maintain the Purchased 3 Assets in good working condition and up-to-date (including but not limited to maintaining third-party links, marketing, advertising, and referral sources).
• Performance of Transition Services . For a period of [MONTHS] months following the Closing, Seller agrees to provide such services as may be necessary to transition the Purchased Assets to Buyer. Such services may include, but are not be limited to (a) communicating with customers regarding the transition; (b) answering questions and queries from Buyer regarding the Purchased Assets; (c) forwarding correspondence, telephone calls, and payment, if any, received in connection with the Purchased Assets to Buyers; (d) assisting with vendors; (e) assisting with any questions concerning the Purchased Assets; and (f) such other services as reasonably requested by Buyer from time to time during the Transition Period. Consideration for such services rendered by Seller during the Transition Period is included as part of the Purchase Price.

REPRESENTATIONS AND WARRANTIES OF SELLER

As an inducement to Buyer to enter into and perform this Agreement, Seller represents and warrants to Buyer as follows:

• Authorization . Seller has full power and authority to enter into this Agreement, all exhibits and schedules hereto, and all agreements contemplated herein (this Agreement and all such exhibits, schedules, and other agreements are collectively referred to herein as the “Acquisition Documents”) to perform his obligations hereunder and thereunder, to transfer the Purchased Assets, and to carry out the transactions contemplated. The Seller has taken all actions required by law or otherwise to authorize the performance of Seller’s obligations hereunder. This Agreement has been duly executed and delivered by Seller, and upon the execution and delivery of the remaining Acquisition Documents, the remaining Acquisition Documents will have been duly executed and delivered by Seller, and this Agreement and the other Acquisition Documents will be the legal, valid, and binding obligations of Seller enforceable according to their terms.
• Title . Seller owns and has good and marketable title to the Purchased Assets, free and clear of all liens , encumbrances, or restrictions (e.g., restrictions on transfers or otherwise). The Acquisition Documents are sufficient to transfer to Buyer all of Seller’s right, title, and interest in and to the Purchased Assets, free and clear of any liens and encumbrances (except as expressly permitted herein).
• Financial Records . Seller has delivered to Buyer true and complete copies of Seller’s financial records relating to the Purchased Assets and the operation of the Purchased Assets for year [YEAR] through the Effective Date; and such financial records are true and correct in all respects and fairly represent Seller’s actual revenues and expenses associated with the operation of the Purchased Assets.
• Litigation . There are no actions, claims, proceedings, or investigations (“Actions”), including, without limitation, Actions for personal injuries, products liability, or breach of warranty arising from the operation of the Purchased Assets, whether pending or threatened against Seller or any properties or rights of Seller, or the transactions contemplated by this Agreement or any other Acquisition Document before any court, arbitrator, or administrative or governmental body. No state of facts exists or has existed that would constitute grounds for the institution of any Action against Seller or against any properties or rights of Seller or the transactions contemplated by this Agreement or any other Acquisition Document. Seller is not subject to any judgment, order, or decree entered in any lawsuit or proceeding that has materially adversely affected the transactions contemplated by this Agreement.
• Insurance . Seller has maintained in full force and effect policies of insurance owned or held by or for the benefit of Seller related to the Purchased Assets, including general liability insurance related to the Purchased Assets (collectively, the “Insurance Policies”). All such Insurance Policies are and will remain in full force and effect through the Closing Date, and there is no notice of or basis for any modification, suspension, termination, or cancellation of any Insurance Policy.
• Compliance with Laws . Seller has not been charged with any violation of, and is not in violation of, and is not under any investigation with respect to any charge concerning any 6 violation of, any federal, state, local, or foreign law, statute, ordinance, rule, regulation, or court or administrative order or process, or arbitrator’s award or process (collectively, “Requirements of Law”), in which such violation either singly or in the aggregate with other violations would have a material adverse effect upon the Purchased Assets. Seller is not in default with respect to any order, writ, injunction , or decree of any court, agency, or instrumentality.
• Disclosure . Seller has disclosed to Buyer all information concerning the Purchased Assets and has not failed to disclose any information known to Seller concerning the Purchased Assets which, if known to a reasonable purchaser, would materially affect or alter the decisions of such purchaser with respect to the transactions contemplated herein. No representation or warranty by Seller in this Agreement or any of the other Acquisition Documents contains or will contain any untrue statement of any material fact, or omits or will omit to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to Seller that materially adversely affects, or that might in the future materially adversely affect, the Buyer’s use of the Purchased Assets, that has not been set forth in this Agreement or the schedules hereto.
• Brokerage . Seller shall be solely responsible for and shall pay from funds held by www.escrow.com a “success fee” to flippa.com pursuant to the terms of a separate agreement. Seller represents and warrants that except as provided in the preceding sentence, no broker or finder has acted directly or indirectly for Seller in connection with this Agreement or the transactions contemplated.
• Indemnification; Post-Closing Obligations .
• The Seller shall hold harmless, indemnify, and defend the Buyer and their successors and assigns, against any and all claims, losses, damages, liabilities, and expenses (including, without limitation, settlement costs and legal, accounting, and other expenses in connection therewith) (collectively, the “Damages”) incurred by Buyer and their successors and assigns in connection with any breach of any representation, warranty, or covenant made by the Sellers.
• The Buyer shall hold harmless, indemnify, and defend the Seller and their successors and assigns, against any and all claims, losses, damages, liabilities, and expenses (including, without limitation, settlement costs and legal, accounting, and other expenses in connection therewith) (collectively, the “Damages”) incurred by Seller and their successors and assigns in connection with any breach of any representation, warranty, or covenant made by the Buyer herein.
• All representations, warranties, covenants, and agreements contained herein and all related rights to indemnification shall survive the Closing until the applicable statute of limitations.
• Entire Agreement . This Agreement, together with the Exhibits, constitutes the entire agreement between Buyer and Seller with respect to the subject matter hereof and may be altered, amended, or repealed only by a duly executed written agreement.
• Severability . If any part of this Agreement shall be held to be unenforceable for any reason, the remainder of the Agreement shall continue in full force and effect.
• Controlling Law . This Agreement shall be governed and enforced in all respects by the laws of the State of [STATE].

IN WITNESS WHEREOF, the parties have executed this Agreement this [DATE].

SELLER: ________________

BUYER: ________________

Seek Professional Advice from a Lawyer

For large transactions, it is always recommended to seek advice from a legal professional to make sure you are protected. Corporate lawyers routinely work on Asset Purchases with their clients, and it is recommended getting in touch to discuss your project.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Need help with an Asset Purchase Agreement?

Meet some of our asset purchase agreement lawyers.

Keidi S. Carrington brings a wealth of legal knowledge and business experience in the financial services area with a particular focus on investment management. She is a former securities examiner at the United States Securities & Exchange Commission (SEC) and Associate Counsel at State Street Bank & Trust and has consulted for various investment houses and private investment entities. Her work has included developing a mutual fund that invested in equity securities of listed real estate investment trusts (REITs) and other listed real estate companies; establishing private equity and hedge funds that help clients raise capital by preparing offering materials, negotiating with prospective investors, preparing partnership and LLC operating agreements and advising on and documenting management arrangements; advising on the establishment of Initial Coin Offerings (ICOs/Token Offerings) and counseling SEC registered and state investment advisers regarding organizational structure and compliance. Ms. Carrington is a graduate of Johns Hopkins University with a B.A. in International Relations. She earned her Juris Doctorate from New England Law | Boston and her LL.M. in Banking and Financial Law from Boston University School of Law. She is admitted to practice in Massachusetts and New York. Currently, her practice focuses on assisting investors, start-ups, small and mid-size businesses with their legal needs in the areas of corporate and securities law.

Experienced and business-oriented attorney with a great depth of contract experience including vendor contracts, service contracts, employment, licenses, operating agreements and other corporate compliance documents.

www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.

Licensed in MI since 2010. Practiced SSDI appeals and auto negligence for over a decade until 12/2022 when I left largest personal injury firm In MI to open my own estate planning firm. Looking for part-time contract/remote work to supplement income as I build my own practice.

Seasoned corporate, business and real estate attorney with 30 years experience managing private practice groups and in-house legal functions for publicly traded, privately held, and family companies.

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I have worked for over 20 years in the areas of family law, business formation, contracts and real estate law. In the area of family law, I represent clients in all areas of family law including child custody, child support, spousal support and marital property division as well as preparing prenuptial and separation agreements. I am experienced in real estate law, including commercial and residential leases, preparing various types of real estate related contracts. I am also experienced in business formation among other business law matters. I currently work in the area of grant management with the Small Business Administration.

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Acquisitions

What is the difference between an asset purchase agreement and business purchase agreement?

I am selling my e-commerce store and want to know which one of these I need.

Just like the name suggests, an asset purchase agreement is just that – an agreement to purchase existing assets. This would be the appropriate document to use if you are buying or selling some or all of the assets of a business but not the business itself. For example, if you own a yard service company and you are interested in buying all of the mowers, trucks, and equipment of another yard service business. An asset purchase agreement would give a defined list of the equipment you are purchasing. If you were interested in buying the whole business, including existing contracts, assuming the debt, and retaining the other business’s employees and perhaps even their name, you would want a business purchase agreement.

Can i get any business lawyer here?

Good day, I am currently in need of an attorney to handle purchase agreement of construction equipment. Let me Know if you can be of great assistance? Best Regards, Jake Williams.

I can help. Do you have a list of the equipment with descriptions, and/or copies of PO's, invoices, bills of lading, receipts, photos, registrations, or other documents evidencing the current or past ownership/registration for or condition of the equipment?

Business Contracts

Can I update an asset purchase agreement post-signing?

I am in the process of purchasing a business, and the asset purchase agreement has already been signed. I recently became aware of some additional assets that I'd like to include in the agreement, and I'm wondering if it's possible to update the agreement post-signing to include these new assets. This purchase is critical to the success of my business, so I'm hoping to get a clear understanding of the legal implications of making changes to the agreement.

Christopher I.

I am not licensed in Arizona, but feel comfortable providing a general answer about contract amendments, because the subject matter doesn’t require any specialized knowledge. Yes, you can amend nearly any agreement—including an asset purchase agreement (“APA”)—after it has been signed; provided, however, you must follow the requirements for a valid contract amendment. At minimum, you’ll need to obtain the other party’s written authorization for the amendment. Be sure to check for an “Amendments” clause in the APA (look for it under the heading “General Provisions” or “Miscellaneous Provisions”) which may introduce additional requirements, e.g., requiring that an amendment must be labeled and signed by the parties in order to be valid. Further, depending on whether you are seeking to materially alter the terms of the APA, your prospective amendment may require new “consideration”. In contract law, “consideration” generally means any type of bargained-for value that the parties exchange. Thus, if your prospective amendment would make the APA’s terms significantly more favorable to you relative to its terms pre-amendment, then such amendment might require that you give additional bargained-for value to the other party for the amendment to be legally effective. In conclusion, if you follow the requirements for a valid contract amendment, then yes, you can modify the APA and those modifications will be legally enforceable. I hope this has been helpful. If you have any specific followup questions or need a Contract Amendment drafted, I would encourage you to speak with a qualified attorney licensed in your state.

How to handle disputes in an asset purchase agreement?

I am in the process of purchasing a business and the seller and I have agreed on all the major terms of the Asset Purchase Agreement. However, we are having difficulty agreeing on the terms of dispute resolution. We both want to ensure that any disputes arising from the agreement are handled in a timely and cost-effective manner. As such, I am looking for advice from a lawyer on how best to handle disputes in an asset purchase agreement.

N'kia N.

The 4 main options for dispute resolution in North Carolina are negotiation, mediation, arbitration, and litigation. The best option(s) for dispute resolution will differ depending on such factors as types of claims and amount in controversy. Although clauses requiring private arbitration have become commonplace in business-related contracts, with the exception of small claims, private arbitration through organizations like the American Arbitration Association ("AAA") and the Judicial Arbitration and Mediation Service ("JAMS") often costs the parties as much time and money as litigation. Therefore, it is important to choose your dispute resolution option(s) carefully and not enter into an agreement blindly. A knowledgeable corporate attorney can help evaluate your best option(s) for dispute resolution related to your business purchase agreement and can even draft the relevant contract term(s). Good luck!

Who drafts the asset purchase agreement?

I have just put my business up for sale and doing some research on what legal documents will be needed in the future.

It depends. In many cases the lawyers representing the seller draft the asset purchase agreement. This is not always the case and at least forty percent (40%) of the deals I have worked on have featured the buyer drafting the asset purchase agreement. Who drafts the agreement may often depend upon who is in a stronger position and/or who has attorneys with the bandwidth to properly support the deal, as envisioned in the relevant term sheet.

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Assignment and Assumption Agreements and Bills of Sale in Asset Acquisitions

This practice note discusses considerations for M&A practitioners when drafting and negotiating assignment and assumption agreements (relating to the transfer of contractual and analogous rights) and bills of sale (relating to the transfer of tangible personal property) in asset purchase transactions.

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Legal Templates

Home Business Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

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Related Practices & Jurisdictions

• Insurance Reinsurance & Surety
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Insurance disputes sometimes arise out of transactions.  Those of you who are involved in transactions, including transactions arising out of insolvencies, might be interested in a cautionary tale from a recent Illinois appellate court case addressing the assignment of insurance policies as part of an asset purchase agreement.  This drafting lesson may help avoid future litigation.

In  The Premcor Refining Group Inc. v. ACE Insurance Company of Illinois , No. 5-18-0210, 2019 Ill. App. Unpub. LEXIS 1539 (Aug. 12, 2019), the purchaser of a refinery from a Chapter 11 debtor sought to obtain the benefits of all the insurance policies issued to the seller and its predecessors by various insurance companies to cover various environmental contamination lawsuits and proceedings.  The refinery was sold via an asset purchase agreement.  The question before the court was whether there was a valid assignment of all the insurance policies from seller to purchaser.

The court concluded that there was no valid assignment of all in the insurance policies in the asset purchase agreement, just the potential assignment of only those policies listed on a particular schedule.  The case was remanded to allow the purchaser to amend its complaint to address only those insurance policies scheduled.

The asset purchase agreement, in the section describing the assets purchased, provided that the purchaser would acquire, among other things, all right, title and interest of the seller in “all proceeds payable under any insurance policy covering the Purchased Assets by reason of any and all occurrences occurring prior to the Closings Date.”  In the section entitled Insurance, the agreement provided that any rights that the seller may have against their insurers with respect to the Purchased Assets shall at closing be assigned to the purchaser.

The court held that neither provision constituted a valid assignment of the rights of the seller under the relevant insurance policies.  The court pointed out that these sections of the asset purchase agreement did not mention liability insurance rights, but evidenced a promise to convey to the purchaser any proceeds from pending claims covering the purchased assets. The court opined that where a purported assignment does not specifically identify an insurance policy, and does not mention liability coverage at all, the subject of the assignment is not described with sufficient particularity to be a valid assignment of all the assignor’s rights under all of its past liability insurance policies.

The court referenced another case where an assignment was found valid by using language that clearly referenced the subject of the assigned liability policies.  In that case,  Illinois Tool Works, Inc. v. Commerce & Industry Insurance Co. , 2011 Ill. App. (1st) 093084 (Dec. 12, 2011), the purchase agreement sufficiently stated what was assigned:

“The benefits, including all rights to defense and indemnity coverage, under any and all policies of liability insurance issued to [Seller] prior to the closing Date . . . with respect to insurance coverage for accidents, occurrences, claims, suits, actions or proceedings arising from the operations, activities, or conduct of the [Seller’s] Business prior to the Closing Date; provided, however, that such benefits shall transfer to [Buyer] to the extent liabilities for such accidents, occurrences, claims, suits, actions, or proceedings are threatened against, transferred to, or otherwise imposed upon [Buyer].”

To avoid litigation over assignment of insurance policies in a corporate transaction requires that if the intent is to assign existing insurance coverage from seller to buyer, the assignment clauses in the purchase agreement must be crystal clear that the policies—not just the proceeds from the polices—are being assigned.  And to make it crystal clear specificity is necessary as to the policies (on a schedule) and what those policies are being assigned to cover should be made clear.

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Asset Purchase Agreement & Government Contract Novation

There are various legal nuances involved with assignment and novation such as whether or not to do an assets purchase agreement sale or transfer the business through a stock purchase.

The federal government could recognize the successor in the business sale if it is within the government’s interest. If you are the seller of a company via an asset purchase agreement (also referred to as an asset sale agreement) and is also the prime contractor on a federal project, there is a possibility that you would have to get a novation agreement approved by the contracting officer.

Novation Selling Your Business? What is an Asset Purchase Agreement?

An asset purchase agreement  ( APA ) is a contract between a buyer and the seller that addresses the disposition of the company assets upon when the sale is finalized.  As it applies to federal government contract novations, you must seriously look at whether or not “assets” and mentioned in the agreement, really meets the government’s definition. The government’s attorney will scrutinize this when you submit your novation agreement package.

When you submit your novation package to the responsible contracting officer, you also want to make sure that the federal contract is not the only ‘asset’ being sold. This would place you in direct contradiction and violation of the Anti Assignment Clause.

The provisions in your asset purchase agreement may include promissory notes to pay the purchase price,  place liens and encumbrances on the asset. You want to make sure that you have a state attorney to validate compliance with your state law when you try to submit a government contract novation.

 Basics of Government Contract Novation Law & Business Asset Sale Agreement Sale 41 USC 15

Under 41 USC 15, if your company is the party to whom the Federal Government issues a contract or purchase order, you cannot transfer the contract or order, or any interest in the contract, to a third party.  If a court determines that there was a transfer without government approval, the purported transfer is a violation of federal novation law and annuls the contract or order so far as the Federal Government is concerned, except that all rights of action for breach of contract are reserved to the Federal Government.

The Anti-Assignment Act, 41 USC 15 prohibits the direct sale of federal contracts. However, the contracting officer can consent to the business transfer. The most common way to buy or sell a business where the buyer or seller is a prime contractor is through a business asset purchase agreement. However, stock purchase contracts are also allowable.

FAR 42.1204 (a) allows  “ novation contract agreements ” when federal government contractors transfer all assets with a merger and acquisition or sale of the business.

Under the Anti-Assignment Act,  41 USC 15, there are no allowances for only the sale of a federal contract. However, if the contract(s) is part of the business purchase contract and sale, the contracting officer may allow the novation of the contract.

Does Your Asset Purchase Agreement Meet the FAR Novation Requirements?

  FAR 42.12 novation law regulates novation of contracts when buying or selling an existing business. Therefore, compliance with the federal assignment and novation laws is also important. As a general rule, the FAR does not require a novation agreement when the sale of the business is caused by an asset purchase. However, always remember that even though this is not a regulatory requirement, the CO still has some say so as to what happens with the contract. See SBA Fraud Cases – Defending Government Contract Fraud Allegations .

• The government is not mandated to approve your novation agreement
• Also, a critical part of your acquisition purchase sale that the government’s attorneys will be interested in is whether your asset sale agreement violates the Anti-Assignment Act.

The contracting officer makes the final decision as to whether a government contract novation agreement is required when there is a merger or acquisition of a federal contractor’s business. See the Basics For FAR 9.5 Organizational Conflict of Interest OCI Mitigation Plan .

Buyers and sellers should get a legal review of the asset purchase sale or stock purchase contract to make sure that the assets are sufficient under the Federal Acquisition Regulations.

What Should be Included in the Asset Agreement?

When you are buying or selling a business involving government contracts, federal novation law requires you to have thorough documentation. For example, the asset purchase agreement should spell out (1) what is the asset? (2) a description of the asset (3) how much is the asset sold for and (4) what assets of the business are not being sold. As mentioned earlier, if the asset sold is only the government contract, the attorneys for the government will more than likely allege that the Anti Assignment law has been violated. There is simply no such thing as government contract sales.

Reasons to Manage Your Business Sales With an Asset Agreement & Novation are Involved

  Given the number of risks associated with the performance of government contracts, buyers, and sellers of businesses should always make sure that the contracting officer (“CO”) is involved early in the business sales process. Only the CO can approve a government contract novation agreement  resulting from an executed business asset purchase agreement.

Getting your novation approved when conducting an asset purchase sale of your company also means establishing some way of managing the entire process.

• You have state law requirements that govern the legal sufficiency of the asset purchase agreement
• You also have federal laws governing the Anti-Assignment Act and the restrictions on selling just the government contract.
• Hire an attorney that can manage both without violating the FAR novation rules.

Having someone that understands the ins and outs of selling a business that involves federal government contracts can be a wise investment. The key to your success is the carefully balance all of the moving pieces while having experienced people that understand the federal contract novation process.

What Happens When Your Government Contract Novation Also Includes an Existing Teaming Agreement?

When companies decide to sell,  there are other wrinkles that can arise. If the existing contract involves a teaming agreement or a joint venture. How does the teaming partner handle the sale to a new company? These are all concerns that can become a problem when trying to get a government contract novation approved.  The agency contracting officer may contemplate problems during the performance with the new party to the contract.

This could lead to the conclusion that the CO does not believe the novation is in the best interest of the government.  You may want to have the parties agree to the transaction. Make sure that the companies involved in the contract performance agree to the sale or purchase.

Does Force Majeure Clauses Apply to Federal Government Contracts COVID 19 ?

For additional help with your asset purchase agreement under 41 USC 15 ,  FAR novation rules for small business stock purchase contract requirements, novation agreements and mergers and acquisition of companies who have prime contracts with the federal government, call our government contract novation law lawyers at 1-866-601-5518 for a FREE INITIAL CONSULTATION.

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