Closing Conditions in E-Commerce Asset Purchase Deals

When an e-commerce business is bought and sold, the buyer and seller generally sign an Asset Purchase Agreement (“APA”). An is a document setting out the obligations of the parties and various other terms and conditions of the sale. An APA is generally the method of buying most of an e-commerce business’s assets rather than a stock or business purchase. An APA specifies which assets are being purchased and has a contract provision — or provisions — that specifically exclude assets. Generally, the buyer does not want to buy — or be liable — for any of the Seller’s debts and liabilities (either known at the time of the purchase or discovered later). Depending on the e-commerce business, assets might include:

Equipment, computers, electronic devices, printers, etc.
Social media accounts, including passwords, admin access identifications, codes, etc.
Seller’s online sales platforms and listing, including all methods of access and control
Inventory in place, incoming, being delivered directly to consumers, etc.
Intangible assets like trademarks, brands, trade names, customer, supplier, and vendor lists and contact information, licenses, permits, telephone numbers, websites including domain names, and business good will — assignments of many types of IP are typically required as part of an APA
Customer, vendor, and other types of contracts
Accounts receivable

But, as noted, buyers do not generally want to assume any of the Seller’s liabilities and debts. Thus, an APA will generally include language that makes it clear that the transaction is NOT a stock purchase and that states that the buyer shall not be responsible for the payment of any liabilities or obligations of the seller.

In all APA transactions, the parties have certain obligations that are set out in the APA. For a simple example, the buyer has an obligation to attend the Closing of the transaction with sufficient money to cover the purchase price. Between the signing of the APA and the Closing, there are generally several months of obligations that must be fulfilled. For example, actual inventory might be subject to liens by the seller’s bank and other financial institutions. Those liens must be cleared before the Closing. Otherwise, the seller cannot tender the inventory “free and clear of liens and encumbrances” as would be required by the APA. The lender will, of course, want its loan or loans paid off by the seller at the Closing, and it takes time to obtain the proper paperwork from lenders in anticipation of a Closing.

This, then, is the purpose of the “Closing Conditions” that are specified in an APA. These are also sometimes called “Conditions Precedent” to the Closing. These are generally the things that must be done, accomplished, or completed before the Closing (such as an online sale’s platform approval of an account transfer) or things that are finalized at the Closing (such as paying off the seller’s existing loans). Closing Conditions often include more general requirements. An example might be:

Buyer’s obligation to close are subject to the following conditions:

There shall not have been from the date hereof to the Closing any damage, destruction or loss, of or to the Assets, which is not covered by insurance. …

If the Closing Conditions are not met, then the transaction fails to consummate. At that point, the parties look to the default or other contract provisions and decide what action to take, if any.

In some APA transactions, a certain set of specific conditions can be “carved out” where the buyer and seller agree that the APA will be deemed null and void if the specific conditions cannot be met. These types of conditions generally involve the obtaining of prior approvals from third parties or from governmental entities.

Key Seller Representations and Warranties in E-Commerce APAs

A substantial portion of an Asset Purchase Agreement in an e-commerce transaction is devoted to representations and warranties — factual statements made by each party about the state of affairs at the time of the deal. Seller representations and warranties are particularly important because the buyer is acquiring a business that has been operated by the seller and must rely heavily on the seller’s representations about the condition and ownership of the assets.

Common representations and warranties by the seller in an e-commerce APA include: (1) that the seller owns all assets to be transferred free and clear of liens and encumbrances; (2) that the trademarks, domain names, and other intellectual property are validly registered and not subject to any challenge or claim; (3) that the Amazon Seller account or other marketplace accounts are in good standing and not subject to suspension or performance plan; (4) that supplier agreements can be assigned without consent or that the necessary consents have been obtained; (5) that the seller has disclosed all pending or threatened litigation; and (6) that the financial statements provided accurately reflect the financial performance of the business.

Buyers negotiate for representations and warranties because they provide a basis for recovery if the representations turn out to be false. If, after closing, the buyer discovers that the Amazon account was actually subject to a performance improvement plan that the seller concealed, the buyer can bring a breach of warranty claim and seek indemnification. The indemnification provisions in the APA — including any caps, baskets, and survival periods — define the practical value of these protections.

Marketplace Platform Transfers: A Common Closing Condition

In e-commerce deals where the primary business asset is a seller account on Amazon, Etsy, eBay, Shopify, or another marketplace platform, obtaining the platform’s approval of the account transfer is often one of the most important and unpredictable closing conditions. Each platform has its own policies on account transfers, and those policies can change.

Amazon, in particular, does not allow direct account transfers. Amazon’s Terms of Service prohibit the assignment of seller accounts. The typical structure for an Amazon business acquisition is either a stock purchase of the entity that owns the account (which avoids a transfer and is therefore permissible) or, in an asset deal, a simultaneous setup of a new seller account for the buyer followed by a migration of the ASINs, product listings, and brand registry from the old account to the new one. This migration process must be approved by Amazon and can take weeks or months. Deals that close before Amazon approves the migration risk a period during which neither buyer nor seller can list products — a potentially costly gap.

For Shopify stores and other direct-to-consumer websites, the asset transfer is more straightforward: domain name transfers, platform account transfers, and payment processor setup can typically be accomplished at or around closing. However, even here, payment processors may conduct new underwriting on the buyer, and the risk of business interruption during the transition should be addressed in the APA through appropriate representations, closing conditions, and post-closing transition provisions.

Post-Closing Obligations and Transition Services

The closing of an e-commerce asset purchase agreement is rarely the end of the transaction. Most deals require a period of post-closing cooperation during which the seller assists the buyer in transitioning the business operations. This is particularly true for e-commerce businesses where the seller’s relationships with suppliers, knowledge of product sourcing, and familiarity with the platform algorithms and PPC advertising strategies are important operational assets.

Post-closing transition services are often memorialized in a Transition Services Agreement (TSA) that specifies the services the seller will provide, the duration of the arrangement, and the compensation (if any) to be paid. Typical TSA provisions include: access to supplier contacts and negotiated pricing terms; training on the use of advertising tools and inventory management software; transfer of operational playbooks and SOPs; and assistance with trademark registration transfers and brand registry updates.

Buyers should negotiate for a meaningful earnout or holdback to incentivize seller cooperation during the transition period. A portion of the purchase price held in escrow — released only upon the seller’s satisfactory completion of transition obligations — provides significant leverage to ensure the seller remains engaged and cooperative during a period that can be challenging for both parties.

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