Legal Definitions - asset purchase

An asset purchase is a business transaction where a buyer acquires specific assets of a company, rather than purchasing the entire company itself (which would typically involve buying its shares or ownership interests). In an asset purchase, the buyer "cherry-picks" the particular assets it wants, such as equipment, inventory, intellectual property, customer lists, or real estate. Crucially, the buyer generally does not assume the seller's liabilities or debts unless explicitly agreed upon.

Here are some examples to illustrate an asset purchase:

• Example 1: Restaurant Expansion

  A successful local bakery, "Sweet Delights," wants to expand its operations. Instead of buying a struggling competitor's entire business, Sweet Delights decides to purchase only its commercial ovens, mixers, and a specific proprietary recipe for sourdough bread. The competitor retains its existing business entity, its debts, its other recipes, and its customer list. Sweet Delights integrates the newly acquired equipment and recipe into its own operations.

  This illustrates an asset purchase because Sweet Delights is acquiring only particular items (equipment and a recipe) from the other business, not the business entity as a whole or its associated liabilities.

• Example 2: Technology Acquisition

  A large software company, "InnovateTech," identifies a smaller startup, "CodeGenius," that has developed a groundbreaking algorithm for data compression. InnovateTech is interested in this specific technology but not in CodeGenius's existing contracts, employees, or office lease. InnovateTech negotiates to purchase only the intellectual property rights to the data compression algorithm and its associated patents from CodeGenius for a significant sum.

  This demonstrates an asset purchase because InnovateTech is acquiring a very specific asset (intellectual property and patents) rather than buying CodeGenius as a complete corporate entity. CodeGenius continues to exist, potentially pivoting to a new focus or winding down, while retaining its other assets and liabilities.

• Example 3: Manufacturing Facility Purchase

  A furniture manufacturer, "WoodCraft Inc.," needs to increase its production capacity. It learns that a competitor, "Timberline Furniture," is closing one of its older manufacturing plants. WoodCraft Inc. decides to purchase the physical building, the specialized woodworking machinery within it, and the existing raw material inventory from Timberline Furniture. WoodCraft Inc. does not take on Timberline Furniture's employee contracts, outstanding supplier invoices, or environmental liabilities from the plant's past operations.

  This is an asset purchase because WoodCraft Inc. is selectively acquiring tangible assets like real estate, equipment, and inventory, without assuming the seller's broader business operations, debts, or other obligations.