Caution: The “Simple” Task Of Describing Assets In A Purchase And Sale Agreement Is Complicated

Posted by Jennifer M. Settles, Esq.Jan 18, 20230 Comments

It probably goes without saying, but in an asset purchase and sale transaction, its critical for the parties to thoughtfully and precisely define the assets which are being purchased and sold in the transaction.   Unlike in a stock transaction (in which all assets of the target company are automatically included in the  conveyance unless expressly removed from the target prior to closing), in an asset deal, the assets being purchased and sold must be negotiated, carefully written, and included as part of the asset purchase and sale agreement (“APA”).     

Creating an asset list, however, can sometimes be quite difficult.   After all, there may be numerous assets or asset classes involved in the deal, and in some cases assets can defy description.  Attorneys and other advisors can help the parties create the asset list, but buyers and sellers themselves are often best suited to precisely understand and define the assets which are to be included in (and excluded from) the transaction.  A collaborative approach is important.  

Pro Tip:  Waiting until the eve of closing to create the asset list (or failing to address the topic at all!) would be a significant mistake.   Instead, the parties should dedicate the appropriate amount of time and effort to create and agree upon the asset list well in advance of the closing.

Below are five important considerations relevant to the asset list in an APA.

1.  Creating the Asset List

In an asset purchase and sale transaction, unless the buyer is purchasing literally all” of the seller's assets (which is quite rare), a specific asset list must be agreed upon between the parties and included as part of the APA.   Simply stated, without an asset list, there would be no clarity as to what exactly is being conveyed in the transaction, and any such lack of clarity could lead to disputes and costly and unanticipated consequences later.     

The asset list can be included within the body of the APA or attached as an exhibit.  Additionally, depending on the nature of the assets, the asset list may also be attached as an exhibit to a separate Bill of Sale delivered by seller to buyer at the closing of the transaction.     

Pro Tip: If an asset list is being attached to more than one document (for instance, if its being attached to both the APA and a Bill of Sale), its essentially that the identical list be used in each document to avoid potential ambiguity.

Note that in a stock purchase and sale transaction, the assets themselves are not being conveyed from the seller to the buyer.  Rather, in a stock deal the entity itself (i.e., the entity which owns the assets) is being conveyed.   As a result, in contrast to an asset purchase and sale transaction, there is usually no need to attach an asset list to a stock purchase and sale agreement.

Before the closing of the transaction, the parties should ensure that they are in agreement with each other as to the content of the asset list. A draft of the asset list needs to be prepared, circulated among the parties and agreed upon before the closing. 

2.  Be Specific

Depending on the nature of the assets being conveyed, specificity in the asset list is very important. Again, the goal here is clarity and the avoidance of ambiguity.     If vehicles are being conveyed in the transaction, for instance, the asset list could reference each vehicle by VIN.   Similarly, goods can be identified by SKU, serial number or other descriptive identifier.      If the asset list is vague or unclear, or if a particular asset is inadvertently omitted from the list altogether, the parties may face disagreement later as to whether the particular item was intended to be included or excluded from the sale.  

Sometimes each individual discrete asset is identified in the asset list, as suggested above in the VIN and SKU examples.   In other cases, assets may be listed by category.   For instance, an asset list might include "All engines in Seller's inventory as of the Closing Date . . ."   

Other times, the parties might use a broad asset description,  such as “ . . . The Assets consist of all assets used in the operation of the Business, including without limitation the following [insert details] . .  . , but excluding the Excluded Assets, as hereinafter defined . . .”        

Pro TipIf  “including without limitation” language is used in the asset description, then the parties must keep in mind that the items specifically enumerated in the list are not exhaustive, which could lead to a scenario where the buyer might actually be acquiring more than he or she anticipated, and the seller might be selling more than intended.    This could be advantageous or disadvantageous, depending on the circumstances.    Always use care when using "including without limitation" language.

3.  Consider Referencing a List of Excluded Assets   

In many cases, including a specific list of excluded assets can be very helpful in the context of defining the included assets.   Exactly as it sounds, an excluded asset list is simply a list of assets which are expressly excluded from the sale transaction.   Excluded assets often include personal effects such as computers, laptops, printers, cell phones, sentimental items, furniture and artwork, as well as other specific items depending upon the transaction.  By referencing a list of excluded assets in the asset list, the parties will eliminate potential disagreement later as to whether such items were intended to be included or excluded in the sale. 

For example, an asset list in an APA could provide that “The Assets consist of all assets identified on Exhibit A hereto, but specifically excluding the Excluded Assets identified on Exhibit B hereto.”  Of course, for this example, Exhibits A and B would have to be created, agreed upon, and attached to the APA.

4.  Working Capital Items 

Also relevant to the topic of the asset description is the treatment of the seller's current assets, which might include bank account balances, prepaid expenses, accounts receivable and deposits. Are cash balances intended to be conveyed?  Should the seller get a credit for its prepaid expenses and security deposits? 

What about the handling of current liabilities, such as accounts payable or short term loans, or inventory on order?   

The APA needs to address whether working capital items will trigger an adjustment to the defined purchase price, or whether the purchase price already reflects working capital.    These are all items for negotiation.   Specificity in the APA as to working capital items is extremely important, and the parties must decide whether working capital items are included or excluded from the assets being conveyed.    Working capital can be significant in dollar value, and can have a material impact on the buyer's initial operations following the closing.  As a result, the parties should never simply assume that working capital items will be handled in any particular manner.  Rather, the APA must be clear, specific and unambiguous as to how these items are being addressed.  

Pro Tip Prospective buyers and sellers should consider whether to specifically address the topic of working capital in the letter of intent (LOI).  Addressing working capital at this early stage of negotiation can be helpful for ensuring that the parties are valuing the business in the same manner.   This can help avoid frustration or waste of time later. 

5.  Inventory

Inventory is another important topic to address in the context of negotiation and preparation of the asset list. If inventory is included in the transaction, how will the inventory be described, or can it be pegged in the APA at a certain value?  Is separate value given to the inventory, and should the APA  include a price adjustment mechanism to reflect additions or depletions in inventory during the contract period prior to the closing?  How and when will the inventory to be transferred after closing, and which party will bear the cost and risk of loss of inventory transfer?  If inventory is housed in a third party logistics (or "3PL") space, how will transfer be effectuated?    Once again, these are items for negotiation, and there is no necessarily correct or incorrect approach.   

Consulting with a qualified business attorney can make a significant difference in the negotiation and drafting of the contract terms and the overall success of  transaction.   Contact Jennifer M. Settles, Esq. today at 602-617-3938 or though the Contact Form on the website,,  for a FREE initial consultation.


Prior to execution of the APA and the closing of a transaction, the parties must carefully negotiate and agree upon the assets to be included and excluded from an asset deal M&A transaction, and must carefully document such terms in the APA and in applicable ancillary transaction documents.   

The list of assets goes to the very heart of an asset purchase and sale transaction and should never be left to chance.   

By considering and addressing the tips and suggestions above, the parties will minimize risk and confusion on the topic of included and excluded assets. 

Jennifer regularly advises parties on APAs and other commercial contracts.  Contact Jennifer M. Settles, Esq. today at (602) 617-3938, or through the Contact Form on the website, for a FREE initial consultation. 

Jennifer M. Settles, Esq. is a corporate lawyer at the Law Office of Jennifer M. Settles.  Jennifer advises clients on M&A transactions, commercial contracts, real estate matters, financing transactions and corporate law.  To schedule a free consultation with Jennifer, please call (602) 617-3938, or connect though the Contact Form on the website.  

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