An Asset Purchase Agreement governs the sale and transfer of specific business assets, detailing what is included, excluded, and how liabilities are handled. This playbook walks through due diligence, valuation considerations, and risk allocation terms essential for a clean transaction.
Why This Matters: Without clear liability caps, a party may face unlimited exposure for indirect or unforeseeable damages, posing serious financial and reputational risks.
Negotiation strategy
If you're the Buyer:
Negotiate a liability cap that aligns with the total contract value to limit financial exposure. Ensure the exclusion of consequential and punitive damages is clearly stated.
If you're the Seller:
Advocate for a reasonable liability cap that reflects the scope of work and potential risks. Ensure direct losses are preserved within the liability framework.
Essential elements
1
Cap on Liability
Maximum recoverable damages amount.
2
Exclusion of Damages
Excludes indirect and punitive damages.
3
Preservation of Losses
Direct losses remain recoverable.
Action framework
ACCEPT
Propose edits if the liability cap is too low or exclusions are unclear.
EDIT
Reject if unlimited liability is imposed without caps.
ADD
Add clauses if liability provisions are missing.
PRO TIP
Always align liability caps with the company's risk tolerance and insurance coverage.
Example clauses
FAVORABLE
Preferred Liability Clause
"The total liability of either party under this Agreement, whether in contract, tort (including negligence), or otherwise, shall not exceed the total amount paid or payable under this Agreement."
NEUTRAL
Standard Liability Clause
"The liability of either party shall be limited to direct damages not exceeding the total contract value, excluding any indirect or punitive damages."
UNFAVORABLE
Unlimited Liability Clause
"Each party shall be liable for all damages arising out of this Agreement without any cap."
Fallbacks
High-Risk Projects
In high-risk projects, consider increasing the liability cap or negotiating additional insurance coverage to mitigate potential indirect damages.
Low-Value Contracts
For low-value contracts, a lower liability cap may be sufficient, but ensure exclusions for indirect damages are still included.
International Agreements
In international agreements, consider jurisdictional differences in liability laws and adjust caps accordingly.
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