Asset Purchase Agreement (APA)
Free APA template for SMB acquisitions. Covers purchase price structure, reps and warranties, indemnification baskets and caps, escrow, working capital adjustment, and closing conditions.
Self-funded searchers and SMB acquirers buying small businesses in the $1M to $10M enterprise value range. Covers the structural deal terms and the protective clauses that determine what happens when the seller's representations turn out to be wrong.
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The Asset Purchase Agreement (APA) is the controlling document for an SMB acquisition. The terms negotiated here decide what assets transfer, what liabilities the buyer assumes, what the seller backs with reps and warranties, and how the buyer recovers if the seller's representations turn out to be wrong.
This template is built for self-funded searchers and SMB acquirers buying small businesses with enterprise values from $1M to $10M, typically financed with a combination of SBA 7(a) loans, seller financing, and equity. It covers the structural deal terms and the protective clauses that determine real economic outcomes for the buyer.
Key Clauses Explained
Purchase and Sale of Assets. Defines what is being purchased. Most SMB deals are asset purchases (not stock purchases) for tax and liability reasons. Asset list typically includes equipment, inventory, customer lists, contracts, IP, goodwill, and the trade name.
Excluded Assets and Liabilities. Lists what does NOT transfer. Critical for the buyer: employee benefits liabilities, pre-close litigation, tax liabilities, and certain contracts the buyer does not want should be explicitly excluded.
Purchase Price and Allocation. The total price and how it gets allocated across asset classes for tax purposes (IRS Form 8594). Buyer wants more allocated to depreciable or amortizable assets; seller wants more allocated to long-term capital gain assets like goodwill.
Working Capital Adjustment. Post-close true-up that adjusts purchase price based on actual working capital at closing versus a pre-agreed target. Settlement period is typically 60 to 90 days.
Escrow Holdback. Portion of purchase price (typically 8 to 15%) held by a neutral third party for 12 to 24 months post-close to fund indemnification claims. Without escrow, indemnification recovery requires litigation against a seller who has spent the proceeds.
Seller Financing Note. Promissory note from buyer to seller for part of the purchase price (commonly 10 to 25% on SBA-backed deals). SBA 7(a) loans require seller notes to be on full standby for at least 24 months.
Earnout (Optional). Contingent payment based on post-close performance. Studies suggest 50 to 70% of earnouts pay less than projected. Use sparingly and write strong protective covenants.
Representations and Warranties. The seller's promises about the business: title to assets, financial statements accuracy, no undisclosed liabilities, customer relationships, employee matters, contracts, IP, taxes, and compliance with law. Survival period typically 12 to 24 months for general reps; longer for fundamental reps.
Indemnification Basket and Cap. Defines how much the seller pays for breaches of reps. Tipping basket pays from dollar one once threshold is crossed; deductible basket pays only above threshold. General cap typically 10 to 25% of purchase price; fundamental reps capped at 100% or uncapped.
Closing Conditions. Requirements that must be met before either party is obligated to close. SBA loan approval is critical for the buyer; landlord consent for lease assignment can sink a deal at the last minute.
Material Adverse Change (MAC). The clause that lets the buyer walk if the target deteriorates between signing and closing. List specific triggers (top customer loss, key employee departure) and put exceptions inside carve-outs.
Non-Compete (Seller). Restricts the seller from competing post-close. Typical: 3 to 5 years within a defined geographic area. M&A non-competes are far more enforceable than employment non-competes when supported by purchase price consideration.
Survival. Defines how long each rep, covenant, and indemnity survives. General reps 12 to 24 months; fundamental reps statute of limitations or longer; tax reps applicable tax statute plus 60 days.
Where this template can still go wrong.
These are the risks that often show up after edits, negotiation, or one-sided additions.
Red Flags to Watch For
- Deductible basket structure when buyer was told it would be tipping. Multi-six-figure swing.
- General reps cap below 10% of purchase price. Limits buyer recovery.
- Fundamental reps capped at general cap level. Title and authorization need to be uncapped or near it.
- No escrow holdback on a deal with seller financing. Indemnification becomes theoretical.
- Earnout without buyer covenant to operate target in ordinary course. Enables earnout suppression.
- Working capital target without trailing 12-month average analysis. Sellers game this number.
- No specific MAC triggers for top customer loss or key employee departure. Buyer left without an off-ramp.
- Non-compete too narrow geographically. Undermines enterprise value being purchased.
The template gets you started. The signed version is what matters.
Once the other side edits this draft, the safest next step is to review the final version before anyone signs.
Copy it, customize it, then make it yours.
Template Text
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of [SIGNING DATE] by and between [SELLER ENTITY NAME] ("Seller") and [BUYER ENTITY NAME] ("Buyer").
1. Purchase and Sale of Assets. Subject to the terms and conditions of this Agreement, Seller shall sell and Buyer shall purchase, on the Closing Date, all of Seller's right, title, and interest in the assets described on Schedule 1.1 (the "Acquired Assets"), free and clear of all liens and encumbrances except as set forth on the Disclosure Schedule.
2. Excluded Assets and Liabilities. The Acquired Assets exclude the assets described on Schedule 2.1 (the "Excluded Assets"). Buyer shall not assume any liabilities of Seller except those expressly assumed on Schedule 2.2 (the "Assumed Liabilities"). All other liabilities remain with Seller.
3. Purchase Price. The total purchase price shall be $[AMOUNT] (the "Purchase Price"), payable as follows: (a) $[CASH AMOUNT] in cash at Closing; (b) $[ESCROW AMOUNT] deposited into Escrow per Section 5; and (c) $[NOTE AMOUNT] evidenced by the Seller Financing Note attached as Exhibit A. The Purchase Price shall be allocated among the Acquired Assets per Schedule 3.1 and reported consistently on IRS Form 8594.
4. Working Capital Adjustment. The Purchase Price assumes Target Working Capital of $[AMOUNT], calculated using the methodology in Schedule 4.1 (based on the trailing 12-month average). Within sixty (60) days after Closing, Buyer shall deliver a Closing Working Capital Statement. Disputes shall be resolved by an independent accountant.
5. Escrow Holdback. $[AMOUNT] (representing [10%] of the Purchase Price) shall be deposited at Closing with [ESCROW AGENT] (the "Escrow Agent") for a period of [18] months (the "General Escrow Period") to fund indemnification claims. An additional $[AMOUNT] (representing [5%] of the Purchase Price) shall be held for [36] months (the "Fundamental Reps Escrow Period").
6. Seller Financing Note. The Seller Financing Note shall be on full standby (no payments) for [24] months following Closing as required by the SBA, with a term of [5] years thereafter, bearing interest at [PRIME + 2%], with a 30-day cure period for monetary defaults and a 60-day cure period for non-monetary defaults.
7. Earnout. [INCLUDE OR OMIT]. If included, Seller may earn up to $[AMOUNT] in additional purchase price based on the achievement of [METRIC] over the [3-year] earnout period. Buyer covenants to operate the business in the ordinary course consistent with past practice during the earnout period. Disputes resolved by an independent accountant.
8. Representations and Warranties of Seller. Seller represents and warrants to Buyer that, except as set forth in the Disclosure Schedule, the representations on Schedule 8.1 are true and correct on the Signing Date and on the Closing Date. The "Fundamental Representations" are: (a) due organization and authority; (b) title to Acquired Assets; (c) capitalization (if applicable); (d) tax matters; and (e) brokers and finders fees.
9. Indemnification. Seller shall indemnify Buyer for losses arising from breach of any representation, warranty, or covenant of Seller. Buyer shall not be entitled to recover until aggregate losses exceed $[BASKET AMOUNT] (the "Basket"), at which point Seller shall pay from the first dollar (the "Tipping Basket"). Seller's aggregate liability under this Section 9 shall not exceed [15%] of the Purchase Price for general representations, but the Fundamental Representations shall be subject to a cap of [100%] of the Purchase Price. The Basket shall not apply to Fundamental Representations or fraud. The cap shall not apply to fraud or willful misconduct.
10. Closing Conditions. Closing is conditioned upon: (a) accuracy of Seller's representations as of Closing Date; (b) Buyer's receipt of SBA 7(a) loan approval on commercially reasonable terms; (c) receipt of all required third-party consents listed on Schedule 10.1 including landlord consent for lease assignment; (d) absence of any Material Adverse Change; and (e) execution of all transaction documents.
11. Material Adverse Change. "Material Adverse Change" means any change or event having a material adverse effect on the business, financial condition, or operations of the target, including: (a) loss of any of the top three customers; (b) departure of [NAMED KEY EMPLOYEE]; (c) any litigation seeking damages in excess of $[THRESHOLD]; or (d) any other event causing a [10%] or greater decline in trailing-twelve-month revenue. Carve-outs for general economic conditions and industry-wide events shall not apply where the target is disproportionately affected.
12. Non-Compete. For a period of [5] years following the Closing Date, Seller and its principals shall not, directly or indirectly, engage in or own any interest in any business that competes with the target business within [100] miles of the target's principal place of business. This restriction is supported by a portion of the Purchase Price allocated as consideration for non-compete.
13. Survival. General representations survive for [18] months following Closing. Fundamental Representations survive for [36] months. Tax representations survive for the applicable statute of limitations plus 60 days. Covenants requiring performance after Closing survive until performed.
14. Governing Law. This Agreement shall be governed by the laws of the State of [STATE].
[SIGNATURE BLOCKS]
[SCHEDULES AND EXHIBITS]
This template provides a framework only. Asset purchase agreements are highly negotiated and require careful customization for each deal. Customize then upload to Inkvex for a fast risk check, and engage an M&A attorney before execution. Inkvex provides legal information, not legal advice.
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