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.
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