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: Overbroad warranties increase the risk of breach claims and litigation, while insufficient remedies leave the client without recourse for performance failures.
Negotiation strategy
If you're the Buyer:
Ensure that the warranties are comprehensive enough to cover all critical aspects of the transaction. Negotiate for clear remedies in case of breach and a reasonable limitation of liability.
If you're the Seller:
Limit the scope of warranties to what is commercially reasonable and ensure that any remedies for breach are manageable. Include a limitation of liability to protect against excessive claims.
Essential elements
1
Authority and Capacity
Power to enter agreement.
2
Compliance with Laws
Adherence to applicable laws.
3
Quality and Performance
Conformance to specifications.
Action framework
ACCEPT
Propose edits if the warranties are too broad or lack clear remedies. Ensure the duration aligns with the agreement's needs.
EDIT
Reject if the clause exposes the client to unlimited liability or lacks essential warranties.
ADD
Add if missing, especially to establish baseline assurances and remedies.
PRO TIP
Always align the warranties with industry standards and the specific risks of the transaction.
Example clauses
FAVORABLE
Preferred Warranties and Representations Clause
"Each party hereby represents and warrants to the other party as follows: Authority and Capacity, Compliance with Laws, No Conflicts, Quality and Performance, Remedy for Breach, Limitation of Liability, Duration of Warranties."
NEUTRAL
Fallback Warranties and Representations Clause
"If the counterparty insists on changes, ensure that any modifications still include clear remedies and a limitation of liability."
UNFAVORABLE
Overbroad Warranties Clause
"The party warrants all aspects of performance without limitation, exposing to unlimited liability."
Fallbacks
High-Risk Projects
In high-risk projects, ensure warranties are robust and include specific remedies for potential failures. Consider additional insurance or indemnities.
Technology Transactions
For technology deals, include warranties on software performance and data security. Ensure compliance with tech-specific regulations.
Pharmaceutical Agreements
In pharma, warranties should cover regulatory compliance and product efficacy. Include clauses for recall procedures and liability limitations.
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WEEK 2
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WEEK 3
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WEEK 4
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