Q&As

Would buyers of business assets, including goodwill, under an asset purchase agreement be liable for the liabilities and debts of the existing business (including tax and employee related liabilities) and how can they limit their liability?

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Published on LexisPSL on 15/03/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Would buyers of business assets, including goodwill, under an asset purchase agreement be liable for the liabilities and debts of the existing business (including tax and employee related liabilities) and how can they limit their liability?
  • Employee related liabilities
  • VAT
  • Stamp duty land tax
  • Capital allowances

Would buyers of business assets, including goodwill, under an asset purchase agreement be liable for the liabilities and debts of the existing business (including tax and employee related liabilities) and how can they limit their liability?

An asset purchase enables the buyer to purchase only those assets and liabilities that it requires and expressly agrees to acquire in the asset purchase agreement (APA). When the acquisition is completed, the buyer becomes the owner of those assets and subject to those liabilities, leaving unwanted assets and, more importantly, liabilities behind in the hands of the seller. Asset purchases allow a buyer flexibility to pick and choose assets and largely avoid the risk of it acquiring unwanted liabilities. The APA will achieve this by differentiating between ‘assumed’ and ‘excluded’ liabilities, thus enabling the buyer to leave behind with the seller any unwanted liabilities. The liabilities that the buyer has agreed to take over from completion should therefore be set out in the definition of ‘assumed liabilities’ in the APA and any additional liabilities which will not be taken over by the buyer should be included in the definition of ‘excluded liabilities’.

The buyer will therefore need to conduct detailed due diligence on the business being acquired so that it can build up a clear picture of the business prior to completion of the acquisition of the assets. The

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