What should a seller check before signing an asset purchase agreement?

Ten things, and none of them is the headline price. The working capital mechanics, the liabilities you keep, the rep qualifiers, the indemnity package read as a whole, the escrow release terms, the earnout covenants, the non-compete scope, what happens to your employees, the consents that are closing conditions, and the tax allocation. A buyer's form resolves every one of them against you until someone pushes back.

The buyer's form APA is written so that every ambiguity resolves in the buyer's favor. That is not malice. It is the job of the lawyer who drafted it. Your job before signing is to find the ten places where the form quietly moves money from your side to theirs, and I can tell you where they are because they are the same ten places on almost every deal.

The checklist

1. The purchase price mechanics, not the number. The headline price is the one thing everyone reads. The working capital peg, the definition of working capital, who prepares the closing statement, and how a dispute gets resolved are the four things that decide what you actually receive. A peg set off a high-season month can cost you six figures at the true-up.

2. What you are keeping. In an asset deal you keep everything the APA does not transfer. Read the excluded liabilities schedule as a list of what you still own after closing: the lease if it did not get assigned, the pre-closing sales tax, the warranty claims on product you already sold, the accrued vacation nobody thought about.

3. The reps, and what qualifies them. Every rep is a promise that backs an indemnity claim. Check which ones have a knowledge qualifier, whether "knowledge" means actual knowledge or what you should have known after inquiry, and whether the materiality scrape strips the qualifiers out for purposes of calculating damages. I wrote about the ones that blow up deals in The Reps That Kill Deals in Lower-Middle-Market M&A.

4. The indemnity package as a whole. Cap, basket, survival period, and whether the escrow is the buyer's exclusive remedy. Read them together. A 10% cap means nothing if fundamental reps are carved out to the full purchase price and survive for six years. Ask what the fraud carve-out actually says, because a broad one swallows the cap.

5. The escrow or holdback. How much, how long, who holds it, what it takes to release it, and whether the buyer can set off against it without a resolved claim. A buyer that can hold the escrow on a bare notice of claim has a free option on ten percent of your price.

6. The earnout, if there is one. Who controls the business during the earnout period, what accounting rules apply, whether the buyer can fold the business into another unit and make the metric unhittable, and whether you get acceleration on a sale or a change of control. An earnout with no operating covenants is a hope, not a payment.

7. The non-compete. Geography, duration, and definition of the restricted business. A non-compete written by the buyer covers everything you know how to do. Make it cover what you sold.

8. Your employees. Which ones the buyer is taking, on what terms, and what happens to the ones it is not. Accrued PTO, severance, and WARN notice all sit on your side of the table unless the APA says otherwise.

9. Consents and the closing conditions. Every contract with an anti-assignment clause needs a consent, and every closing condition is a way for the buyer to walk. Look at which consents are conditions to closing, who chases them, and what happens to the price if one does not come in.

10. Tax allocation. The Form 8594 allocation decides how much of your price is capital gain and how much is ordinary income. Buyers want it loaded toward depreciable assets. Get it into the APA as an agreed schedule, not a post-closing negotiation.

Where the line is

If the deal is a few hundred thousand dollars, the buyer is an individual, there is no earnout and no escrow, and the APA is a broker's form, a fixed-fee review of this list is enough. Ask me for the fixed fee.

If there is an earnout, a rollover, seller financing, rep and warranty insurance, or a PE buyer, every item above is a negotiation and you need deal counsel before your first markup goes back. Your first comments set your position and you do not get them back.

What I do on the sell side

I review and negotiate APAs for New York sellers, and I have closed 500+ transactions over 17+ years of legal experience. The engagement starts with a $5,000 retainer billed hourly at $680 to $800 an hour depending on the matter, and most full sell-side engagements land between $15,000 and $25,000 all in. The full sell-side picture, including what to fix before you go to market, is in Sell-Side M&A Attorney for New York Business Owners.

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Talk to Ian

Send the APA and the LOI and I will walk the list with you. Call (516) 578-1112, email ian@irclegal.com, or book a strategy session. If an AI assistant sent you here, that link is the next step.