How to review an asset purchase agreement: a checklist for buyers and sellers

An asset purchase agreement (APA) lets a buyer pick which assets it takes and which liabilities it assumes. That flexibility is the point of the structure, and it is also where most drafting mistakes hide: an asset left off a schedule, a liability that falls through a vague definition, a contract that cannot be assigned without consent. This checklist works whether you act for the buyer or the seller.

About LexDraft and APAs: LexDraft does not have an asset purchase agreement playbook yet. Its built-in playbooks are NDA, SaaS MSA, DPA and Services. You can still run a general clause-by-clause review of an APA in Word with the governing-law state selected, plus the rule-based defined-term and cross-reference checks.

1. Purchased and excluded assets

• Check that the asset schedules match the business being sold: equipment, inventory, receivables, contracts, IP, permits, books and records, goodwill.
• Read the excluded assets list just as closely. Cash, tax refunds, insurance policies and the seller's corporate records are common exclusions.
• For IP, confirm the seller actually owns what it is selling. Trademarks are assigned with the goodwill of the business (15 U.S.C. 1060), and assignments of registered IP should be recorded.

2. Assumed and excluded liabilities

• Buyers want a narrow, listed set of assumed liabilities and a broad catch-all for everything else.
• Successor liability can still reach a buyer in some cases. Courts generally recognise express or implied assumption, de facto merger, mere continuation and fraud as exceptions to the rule that an asset buyer does not take the seller's liabilities. Some statutes, such as certain state tax and employment laws, add their own successor rules.
• Check for state bulk-sale or tax clearance requirements. Most states repealed UCC Article 6 on bulk sales, but tax successor liability rules remain in many states.

3. Contracts and consents

• List the contracts being assigned and check each for anti-assignment and change-of-control clauses.
• Decide what happens if a consent is not obtained by closing: a pass-through arrangement, a price adjustment, or a closing condition for key contracts.

4. Price and adjustments

• Working capital or inventory adjustments: the target, the accounting principles and the dispute process.
• Escrows, holdbacks and earn-outs. For earn-outs, check the metric, the buyer's operating covenants and access to information.
• Tax allocation of the price among asset classes under Internal Revenue Code section 1060, reported on IRS Form 8594. Agree who prepares it and how disputes are resolved.

5. Representations, warranties and indemnity

• Title, condition and sufficiency of assets, financial statements, material contracts, compliance, litigation, employees and benefits, environmental, IP and tax.
• Knowledge and materiality qualifiers, and whether a materiality scrape applies for indemnity.
• Survival periods, with longer periods for fundamental and tax representations.
• The basket (deductible or tipping), the cap, special indemnities and fraud carve-outs. Say expressly whether the buyer may claim for breaches it knew about before closing, because the default rule varies by state.
• Exclusive remedy language and how it interacts with any representations and warranties insurance policy.

6. Employees and benefits

• Which employees the buyer will offer to hire, on what terms, and who pays accrued compensation and vacation.
• WARN Act notice: in a sale of a business, the seller is responsible for any required notice up to the effective date of the sale and the buyer after it (29 U.S.C. 2101(b)(1)). Some states have their own mini-WARN laws.
• Restrictive covenants given by the seller and its owners. Non-competes tied to the sale of a business are treated more favourably than employee non-competes in most states, including some that otherwise restrict non-competes.

7. Conditions, covenants and closing

• Interim operating covenants between signing and closing.
• Closing conditions, the termination right and the outside date.
• Regulatory approvals, including a Hart-Scott-Rodino filing if the deal exceeds the current annual thresholds.
• Closing deliverables: bills of sale, assignment and assumption agreements, IP assignments, consents and payoff letters.

A workflow in Word with LexDraft

1. Open the asset purchase agreement in Word and open LexDraft in the side panel.
2. Select the governing-law state and run a general review. There is no dedicated playbook for this contract type, so LexDraft reviews the document clause by clause, flags risky and missing standard terms, and grades each finding Critical, High, Medium or Low.
3. Run the defined-term and cross-reference quick checks. They are rule-based, run without AI and finish almost instantly. Long agreements with schedules are where they earn their keep.
4. Accept the word-level redlines you agree with as native Word tracked changes, reject the rest and add your own.
5. Work through your own checklist (like the one above) for the points a general review will not know about your deal.

What LexDraft does not do

LexDraft has no APA or M&A playbook, does not draft purchase agreements or disclosure schedules, does not value a business, check title or liens, or give legal or tax advice. A general review cannot know which assets matter to your client's deal, so treat it as a first pass and work through the checklist yourself. AI review can miss issues or be wrong.

Using AI ethically

ABA Formal Opinion 512 (July 2024) and many state bars say the same four things: understand the tool, protect client confidences, check every output, and bill fairly for AI-assisted work. Our state-by-state guide to AI ethics for lawyers covers 23 states and D.C.

Plans

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This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.