沉浸式翻译Reading 1: Subsidiary Company: Definition, Examples, Pros & Cons
阅读 1：子公司：定义、示例、优缺点
What Is a Subsidiary?
子公司是什么？
In the corporate world, a subsidiary is a company that belongs to another company, which is usually referred to as the parent company or holding company. The parent holds a controlling interest in the subsidiary company, meaning it owns or controls more than half of its stock. In cases where a subsidiary is 100% owned by another company, the subsidiary is referred to as a wholly owned subsidiary
在企业界，子公司是指属于另一家公司的公司，通常被称为母公司或控股公司。母公司持有子公司的控股权，意味着它拥有或控制超过一半的股份。在子公司完全由另一家公司拥有的情况下，该子公司被称为全资子公司。.
KEY TAKEAWAYS
主要观点
A subsidiary is a company that is more than 50% owned by a parent company or holding company.
子公司是由母公司或控股公司持有超过 50%股权的公司。
Subsidiaries are separate and distinct legal entities from their parent companies.
子公司是与其母公司分开且独立的法律实体。
Companies buy or establish a subsidiary to obtain specific synergies or assets, secure tax advantages, and contain or limit losses.
公司购买或建立子公司是为了获得特定的协同效应或资产，获得税收优势，并控制或限制损失。
Shareholder approval is not required to turn a company into a subsidiary or to sell a subsidiary.
股东批准不需要将公司转变为子公司或出售子公司。
A subsidiary's financials are reported on the parent's consolidated financial statements.
子公司的财务状况在母公司的合并财务报表中报告。
How Subsidiaries Work
子公司的运作方式
Subsidiaries are separate and distinct legal entities from their parent companies, which is reflected in the independence of their liabilities, taxation, and governance. If a parent company owns a subsidiary in a foreign land, the subsidiary must follow the laws of the country where it is incorporated and operates.
子公司是与其母公司分开且独立的法律实体，这体现在其责任、税收和治理的独立性上。如果母公司在外国拥有子公司，子公司必须遵守其注册和运营所在国家的法律。
However, given their controlling interest, parent companies often have considerable influence over their subsidiaries. They—along with other subsidiary shareholders, if any—vote to elect a subsidiary company's board of directors, and there may often be a board-member overlap between a subsidiary and its parent company.
然而，鉴于其控股权，母公司通常对其子公司具有相当大的影响力。他们与其他子公司股东（如果有的话）一起投票选举子公司的董事会，子公司和母公司之间的董事会成员之间可能经常存在重叠。
To be designated a subsidiary, at least 50% of a company's equity has to be controlled by another entity. Anything less, and the company is considered an associate or affiliate company.
要被指定为子公司，至少 50%的公司股权必须由另一个实体控制。如果不足 50%，则该公司被视为联营公司或附属公司。
Subsidiary Financials
子公司财务数据
A subsidiary usually prepares independent financial statements. Typically, these are sent to the parent, which will aggregate them—as it does financials from all of its operations—and carry them on its consolidated financial statements. In contrast, an associate company's financials are not combined with the parent's. Instead, the parent registers the value of its stake in the associate as an asset on its balance sheet
子公司通常会准备独立的财务报表。通常，这些报表会发送给母公司，母公司会将其汇总——就像它对所有业务的财务报表一样——并将其包含在其合并财务报表中。相比之下，联营公司的财务报表不会与母公司合并。相反，母公司会将其在联营公司的股权价值登记为资产，记录在其资产负债表上。.
Accounting standards generally require that public companies consolidate all majority-owned subsidiaries. Consolidation is viewed as a more meaningful method of accounting than providing separate financials for a parent company and each of its subsidiaries.
会计准则通常要求上市公司合并所有绝大多数持股子公司。合并被视为比为母公司及其各个子公司提供单独财务报表更有意义的会计方法。
An unconsolidated subsidiary is a subsidiary with financials that are not included in its parent company's statements. Ownership of unconsolidated subsidiaries is typically treated as an equity investment and denoted as an asset on the parent company's balance sheet. For regulatory reasons, unconsolidated subsidiaries are generally those in which a parent company does not have a significant stake.12
非合并子公司是指其财务状况未包含在母公司报表中的子公司。非合并子公司的所有权通常被视为股权投资，并在母公司资产负债表上表示为资产。出于监管原因，非合并子公司通常是指母公司没有重大股权的子公司。
The Securities and Exchange Commission (SEC) states that only in rare cases, such as when a subsidiary is undergoing bankruptcy, should a majority-owned subsidiary not be consolidated.
证券交易委员会（SEC）表示，只有在极少数情况下，例如子公司正在破产时，才不应该合并控股子公司。
Subsidiary Pros and Cons
子公司的利弊
Buying an interest in a subsidiary usually requires a smaller investment on the part of the parent company than a merger would. Also unlike a merger, shareholder approval is not required to purchase or sell a subsidiary.
购买子公司的利益通常需要母公司投资较少，而不像合并那样需要大笔投资。与合并不同的是，购买或出售子公司不需要股东批准。
A parent company buys or establishes a subsidiary to obtain specific synergies, such as a more diversified product line or assets in the form of earnings, equipment, or property. Subsidiaries can be the experimental ground for different organizational structures, manufacturing techniques, and types of products.
母公司购买或建立子公司以获得特定的协同效应，例如更多样化的产品线或以收入、设备或财产形式的资产。子公司可以成为不同组织结构、制造技术和产品类型的实验场所。
In addition, subsidiaries can contain and limit problems for a parent company to some extent, with the subsidiary serving as a kind of liability shield in the event of lawsuits. Entertainment companies often set up individual movies or TV shows as separate subsidiaries for this reason.
此外，子公司可以在一定程度上包容和限制母公司的问题，子公司在诉讼发生时充当一种责任屏障。出于这个原因，娱乐公司经常将单独的电影或电视节目设立为独立的子公司。
However, subsidiaries also have a few drawbacks. Aggregating and consolidating a subsidiary's financials can make the parent company's accounting more complicated.
然而，子公司也有一些缺点。汇总和整合子公司的财务可能会使母公司的会计工作变得更加复杂。
Since subsidiaries must remain independent to some degree, transactions with the parent may have to be "at arm's length," and the parent might not have all of the control it wishes. And while a subsidiary can help shield the parent company from certain legal problems, the parent may still be liable for criminal actions or corporate malfeasance by the subsidiary. Finally, it may have to guarantee the subsidiary's loans, leaving it exposed to financial losses.
由于子公司必须在一定程度上保持独立性，与母公司的交易可能需要“以公平价格”进行，母公司可能无法获得所有希望的控制权。虽然子公司可以帮助保护母公司免受某些法律问题的影响，但母公司仍可能对子公司的刑事行为或公司渎职承担责任。最后，母公司可能需要担保子公司的贷款，从而使其面临财务损失。
Pros
优势
Contained/limited losses
包含/限制损失
Potential tax advantages
潜在的税收优势
Easier to establish and sell
更容易建立和销售
Synergy with other corporate divisions, subsidiaries
与其他公司部门、子公司协同合作
Cons
缺点
Extra legal and accounting work
额外的法律和会计工作
Greater bureaucracy
更大的官僚主义
Complex financial statements
复杂的财务报表
Liability for subsidiary's actions, debts
子公司行为、债务的责任
Real World Examples of Subsidiaries
子公司的真实世界示例
Public companies are required by the SEC to disclose significant subsidiaries. Warren Buffett's Berkshire Hathaway Inc., for example, has a long and diverse list of subsidiary companies, including International Dairy Queen, Clayton Homes, Business Wire, GEICO, and Helzberg Diamonds.
公开公司根据证监会的要求披露重要子公司。例如，沃伦·巴菲特的伯克希尔·哈撒韦公司拥有一长串多样化的子公司，包括国际冰雪皇后、克莱顿房屋、商业线、GEICO 和赫尔兹伯格钻石。
Berkshire Hathaway's acquisition of many diverse businesses follows Buffett's oft-discussed strategy of buying undervalued assets and holding onto them. In return, acquired subsidiaries can often continue to operate independently while gaining access to broader financial resources.
伯克希尔哈撒韦收购许多不同业务遵循巴菲特经常讨论的策略，即购买被低估的资产并持有。作为回报，收购的子公司通常可以继续独立运营，同时获得更广泛的财务资源。
Like Berkshire Hathaway, Alphabet Inc. has many subsidiaries, the best known of which is Google. These separate business entities all perform unique operations intended to add value to Alphabet through diversification, revenue, earnings, and research and development (R&D)
与伯克希尔·哈撒韦类似，Alphabet Inc. 拥有许多子公司，其中最著名的是谷歌。这些独立的业务实体都进行独特的运营，旨在通过多元化、收入、利润和研发为 Alphabet 增加价值。.
For example, Sidewalk Labs seeks to modernize public transit in the United States. The company has developed a public transportation management system that aggregates millions of data points from smartphones, cars, and Wi-Fi hotspots to analyze and predict where traffic and commuters are most congregated. The system can redirect public transportation resources, such as buses, to these congested areas to keep the public transit system moving efficiently.4
例如，Sidewalk Labs 寻求在美国现代化公共交通。该公司开发了一个公共交通管理系统，汇总来自智能手机、汽车和 Wi-Fi 热点的数百万数据点，以分析和预测交通和通勤者最集中的地点。该系统可以重新调整公共交通资源，如公共汽车，到这些拥挤的地区，以保持公共交通系统的高效运行。
Is a Subsidiary Its Own Company?
子公司是自己的公司吗？
Yes. A subsidiary is independent, operating as a separate and distinct entity from its parent company. That said, the parent company, as a majority owner, can influence how its subsidiary is run and may be liable, for example, for the subsidiary's negligence and debt.
是的。子公司是独立的，作为一个与母公司分开的独立实体运营。也就是说，作为大部分股东，母公司可以影响其子公司的运营方式，并且可能对子公司的疏忽和债务负责。
Does a Subsidiary Have Its Own CEO?
子公司有自己的首席执行官吗？
As a subsidiary functions as a separate entity, it usually has its own management team and CEO. However, the parent company will get a significant say in who runs the company and who sits on its board of directors.
作为一个独立实体的子公司通常有自己的管理团队和首席执行官。然而，母公司将在决定公司的管理人员和董事会成员方面发表重要意见。
What Are Sister Companies?
姐妹公司是什么？
Two or more subsidiaries majority owned by the same parent company are called sister companies.
由同一母公司控股的两个或更多子公司被称为姊妹公司。
The Bottom Line
底线
A subsidiary is a company that is completely or partially owned by another company. Acquiring and establishing subsidiaries is fairly common among publicly traded companies, especially in industries like tech and real estate. The advantages of these business structures include tax benefits, reduced risk, increased efficiencies, and diversification. Drawbacks include limited control and greater bureaucracy and legal costs.
子公司是完全或部分由另一家公司拥有的公司。对于上市公司来说，收购和建立子公司是相当普遍的，特别是在科技和房地产等行业。这些商业结构的优势包括税收优惠、降低风险、提高效率和多元化。缺点包括受限制的控制权、更大的官僚主义和法律成本。
https://www.investopedia.com/terms/s/subsidiary.asp#toc-what-is-a-subsidiary
Reading 2: Mergers: Definitions
阅读 2：合并：定义
Merger
合并
A corporate strategy to combine with another company and operate as a single legal entity
与另一家公司合并并作为单一法律实体运营的企业战略
What is a Merger?
合并是什么？
A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are typically equal in terms of size and scale of operations.
合并是一种企业战略，与另一家公司合并并作为一个单一的法律实体运营。同意合并的公司通常在规模和经营范围上是相等的。
Summary:
摘要：
Companies seek mergers to gain access to a larger market and customer base, reduce competition, and achieve economies of scale.
公司寻求合并以获得更大的市场和客户群，减少竞争，并实现规模经济。
There are different types of mergers that the companies can follow, depending on their objectives and strategies.
公司可以根据其目标和战略选择不同类型的合并。
A merger is different from an acquisition. Mergers happen when two or more companies combine to form a new entity, whereas an acquisition is the takeover of a company by another company.
合并与收购是不同的。当两个或更多公司合并形成一个新实体时，就发生了合并，而收购是一家公司被另一家公司接管。
Why do Mergers Happen?
为什么会发生合并？
After the merger, companies will secure more resources and the scale of operations will increase.
合并后，公司将获得更多资源，业务规模将增加。
Companies may undergo a merger to benefit their shareholders. The existing shareholders of the original organizations receive shares in the new company after the merger.
Companies may agree to a merger to enter new markets or diversify their offering of products and services, consequently increasing profits.
Mergers also take place when companies want to acquire assets that would take time to develop internally.
To lower the tax liability, a company generating substantial taxable income may look to merge with a company with significant tax loss carry forward .
A merger between companies will eliminate competition among them, thus reducing the advertising price of the products. In addition, the reduction in prices will benefit customers and eventually increase sales.
Mergers may result in better planning and utilization of financial resources.
Types of Merger
合并类型
1. Congeneric/Product extension merger
1. 同类/产品延伸合并
Such mergers happen between companies operating in the same market. The merger results in the addition of a new product to the existing product line of one company. As a result of the union, companies can access a larger customer base and increase their market share.
2. Conglomerate merger
Conglomerate merger is a union of companies operating in unrelated activities. The union will take place only if it increases the wealth of the shareholders.
3. Market extension merger
Companies operating in different markets, but selling the same products, combine in order to access a larger market and larger customer base.
4. Horizontal merger
Companies operating in markets with fewer such businesses merge to gain a larger market. A horizontal merger is a type of consolidation of companies selling similar products or services. It results in the elimination of competition; hence, economies of scale can be achieved.
5. Vertical merger
A vertical merger occurs when companies operating in the same industry, but at different levels in the supply chain, merge. Such mergers happen to increase synergies, supply chain control, and efficiency.
Advantages of a Merger
1. Increases market share
When companies merge, the new company gains a larger market share and gets ahead in the competition.
2. Reduces the cost of operations
Companies can achieve economies of scale, such as bulk buying of raw materials, which can result in cost reductions. The investments on assets are now spread out over a larger output, which leads to technical economies.
3. Avoids replication
Some companies producing similar products may merge to avoid duplication and eliminate competition. It also results in reduced prices for the customers.
4. Expands business into new geographic areas
A company seeking to expand its business in a certain geographical area may merge with another similar company operating in the same area to get the business started.
5. Prevents closure of an unprofitable business
Mergers can save a company from going bankrupt and also save many jobs.
Disadvantages of a Merger
1. Raises prices of products or services
A merger results in reduced competition and a larger market share. Thus, the new company can gain a monopoly and increase the prices of its products or services.
2. Creates gaps in communication
The companies that have agreed to merge may have different cultures. It may result in a gap in communication and affect the performance of the employees.
3. Creates unemployment
In an aggressive merger, a company may opt to eliminate the underperforming assets of the other company. It may result in employees losing their jobs.
4. Prevents economies of scale
In cases where there is little in common between the companies, it may be difficult to gain synergies. Also, a bigger company may be unable to motivate employees and achieve the same degree of control. Thus, the new company may not be able to achieve economies of scale.
https://corporatefinanceinstitute.com/resources/valuation/merger/
Reading 3: Acquisitions: Definitions
Acquisition
The purchase of part or all of another company's shares or assets
What is an Acquisition?
An acquisition is defined as a corporate transaction where one company purchases a portion or all of another company’s shares or assets. Acquisitions are typically made in order to take control of, and build on, the target company’s strengths and capture synergies. There are several types of business combinations: acquisitions (both companies survive), mergers (one company survives), and amalgamations (neither company survives).
The acquiring company buys the shares or the assets of the target company, which gives the acquiring company the power to make decisions concerning the acquired assets without needing the approval of shareholders from the target company.
Acquisition vs. Merger
Mergers and Acquisitions (M&A) are similar transactions, however, they are significantly different legal constructs.
In an acquisition, both companies continue to exist as separate legal entities. One of the companies becomes the parent company of the other.
In a merger (actual merger), both entities combine and only one continues to survive while the other company ceases to exist.
Another type of transaction is an amalgamation (merger by consolidation), where neither legal entity continues to survive. Instead, an entirely new company is created.
Benefits of Acquisitions
Acquisitions offer the following advantages for the acquiring party:
1. Reduced entry barriers
With M&A, a company is able to enter into new markets and product lines instantaneously with a brand that is already recognized, with a good reputation and an existing client base. An acquisition can help to overcome market entry barriers that were previously challenging.
Market entry can be a costly scheme for small businesses due to expenses in market research, development of a new product, and the time needed to build a substantial client base.
2. Market power
An acquisition can help to increase the market share of your company quickly. Even though competition can be challenging, growth through acquisition can be helpful in gaining a competitive edge in the marketplace. The process helps achieves market synergies .
3. New competencies and resources
A company can choose to take over other businesses to gain competencies and resources it does not hold currently. Doing so can provide many benefits, such as rapid growth in revenues or an improvement in the long-term financial position of the company, which makes raising capital for growth strategies easier. Expansion and diversity can also help a company to withstand an economic slump.
4. Access to experts
When small businesses join with larger businesses, they are able to access specialists such as financial, legal or human resource specialists.
5. Access to capital
After an acquisition, access to capital as a larger company is improved. Small business owners are usually forced to invest their own money in business growth, due to their inability to access large loan funds. However, with an acquisition, there is an availability of a greater level of capital, enabling business owners to acquire funds needed without the need to dip into their own pockets.
6. Fresh ideas and perspective
M&A often helps put together a new team of experts with fresh perspectives and ideas and who are passionate about helping the business reach its goals.
Challenges with Acquisitions
M&A can be a good way to grow your business by increasing your revenues when you acquire a complimentary company that is able to contribute to your income. Nevertheless, M&A deals can also create some hitches and disadvantage your business. You must take these potential pitfalls into consideration before pursuing an acquisition.
1. Culture clashes
A company usually has its own distinct culture that has been developing since its inception. Acquiring a company that has a culture that conflicts with yours can be problematic. Employees and managers from both companies, as well as their activities, may not integrate as well as anticipated. Employees may also dislike the move, which may breed antagonism and anxiety.
2. Duplication
Acquisitions may lead to employees duplicating each other’s duties. When two similar businesses combine, there may be cases where two departments or people do the same activity. This can cause excessive costs on wages. M&A transactions, therefore, often lead to reorganization and job cuts to maximize efficiencies. However, job cuts can reduce employee morale and lead to low productivity.
3. Conflicting objectives
The two companies involved in the acquisition may have distinct objectives since they have been operating individually before. For instance, the original company may want to expand into new markets, but the acquired company may be looking to cut costs. This can bring resistance within the acquisition that can undermine efforts being made.
4. Poorly matched businesses
A business that doesn’t look for expert advice when trying to identify the most suitable company to acquire may end up targeting a company that brings more challenges to the equation than benefits. This can deny an otherwise productive company the chance to grow.
5. Pressure on suppliers
Following an acquisition, the capacity of the suppliers of the company may not be enough to provide the additional services, supplies, or materials that will be needed. This may create production problems.
6. Brand damage
M&A may hurt the image of the new company or damage the existing brand. An evaluation of whether the two different brands should be kept separate must be done before the deal is made.
Key Takeaways
主要观点
When a company is looking to expand, one way many business owners consider doing so is through the acquisition of another similar business. An acquisition is a great way for a company to achieve rapid growth over a short period of time. Companies choose to grow through M&A to improve market share, achieve synergies in their various operations, and to gain control of assets. It is less expensive, less risky, and faster, as compared to traditional growth methods such as sales and marketing efforts.
While an acquisition can create substantial and rapid growth for a company, it can also cause some problematic issues along the way. Several things can go wrong even when there is a well-laid plan. There may be a clash between the different corporate cultures, synergies may not match, some key employees may be forced to leave, assets may have a lower value than perceived, or company objectives may conflict.
Before putting the acquisition of another business into consideration, it is essential to analyze the advantages and disadvantages that will be presented by the business deal. A well-executed strategic acquisition that takes advantage of potential synergies can be one of the best ways for a company to achieve growth.
https://corporatefinanceinstitute.com/resources/valuation/acquisition/
Reading 4: Seven key Legal Aspects of M&A
The legal implications of M&A are almost as important as the financial implications.
From the moment a company makes its initial contact with a target, right through to closing the transaction (and sometimes even after) there are numerous legal matters that a firm must handle. Hence, it’s important when beginning an M&A journey that a company hires a competent M&A lawyer to avoid the existential threat of litigation.
DealRoom regularly helps teams organize M&A and legal processes and and below we look at what we believe to be 7 key legal aspects of the M&A process.
List of Key Legal Aspects of Mergers and Acquisitions
Due Diligence
Deal Structure
Representations and Warranties
Non-Competes and Non-Solicits
Target Indemification
Joint and Several Liability
Closing Conditions
1. Due Diligence
Due diligence is top of every corporate M&A attorney’s to-do list. Covering all aspects of the target company, from its operations through to its intellectual property, a good legal counsel - equipped with strong due diligence technology - will be aware of the intricacies involved and what to look out for.
In this process, they meticulously evaluate various components including existing contracts, compliance with regulatory standards, intellectual property rights, ongoing or potential litigations, employment-related matters, environmental concerns, and even tools such as legal invoice software used by an organization for legal billing.
Their primary objective is to discern and highlight potential risks or liabilities that could impact the transaction, ensuring that no stone is left unturned, and crucially, to flag any concerns that might lead to future litigation.
2. Deal Structure
The term ‘deal structure’ tends to make people think of financial structures, earn outs and divisions between cash and equity.
The reality is, a deal structure is as much legal as it is financial.
For example, whatever structure is agreed to in the deal, important legal issues need to be considered, including shareholder approval, the tax consequences of the structure agreed to, transferability of liability, third-party contractual consent requirements, and foreign regulatory issues (if applicable).
Deciding whether to buy the company or just its assets (thus, not taking on any of its liabilities) is another consideration that corporate M&A lawyers will advise on.
3. Representations and Warranties
It is now standard for acquirers to include several representations and warranties in the terms of their transaction.
These typically aim to avoid the threat of litigation for the acquiring firm in issues such as
compliance,
tax,
authority,
capitalization,
and material contracts.
This is no small matter - generally, breaches in any of these representations and warranties can result in indemnification claims from the acquirer - destroying value in the deal.
This can be a complex gray area, where even the most honest target company owner may leave themselves vulnerable on issues that they might not always have full awareness of.
Lawyers on the sell side will often try to push back against many of the representations and warranties on this basis.
4. Non-Competes and Non-Solicits
Non-competes and non-solicits are important legal clauses in practically all transactions, particularly in the services industries.
Suppose, for example, that a technology firm acquires a technology startup with some of Silicon Valley’s most talented software engineers.
Without a non-compete, what’s to stop the team members of this company jumping ship and beginning a copycat company straight after the sale of their startup?
Restrictions here should be reasonable in their time and scope, and include some consideration.
5. Target Indemnification
Target indemnification are hotly contested clauses in the closing conditions of M&A transactions.
Again, these are essentially clauses which seek to protect the acquiring company on the downside.
Say, in the case of fraud or or material misrepresentation on the part of the seller, the acquirer could include an indemnification clause that annuls the transaction and/or forces the seller to pay back a pre-agreed amount up to the value of the closing price.
6. Joint and Several Liability
Joint or several liability is an extension of the target indemnification issue.
It asks: Which of the target’s shareholders does indemnification apply to, and to what extent. In the case of joint liability, each of the target’s shareholders is fully liable for any future damages.
In the case of several liability, each of the target’s shareholders can be liable only to the extent that they are seen to have contributed to the damages (for example, the CFO would be responsible for misstatements in the company’s financial results, but not the CTO).
7. Closing Conditions
The conditions set out in the definitive agreement are themselves subject to closing conditions. As the name suggests, these are conditions that must be met in order for the transaction to close.
These tend to be the same across transactions and typically include board approval for the deal, the absence of any material changes to the company’s trading conditions, and of course, shareholder approval.
In the case of shareholder approval, acquirer’s often seek shareholder approval in excess of 80%, to avoid the complications that arise with hostile acquisitions (such as appraisal claims, for example).
https://dealroom.net/blog/mergers-and-acquisitions-legal-aspects
Reading 5: Asset Purchase Agreement
An asset purchase agreement is an agreement between a buyer and a seller to purchase property, like business assets or real property, either on their own or as part of a merger-acquisition. The agreement describes the assets that will be purchased, including important details like price, warranties, and breach of contract provisions.
With contract management software, your company is able to manage these complex agreements effectively. You can streamline your system to save time, money, and other resources. An asset purchase agreement can be standardized for future use while permitting easy modifications for future deals, and you’ll have tools to better manage these contracts and improve your business deals moving forward.
What is an asset purchase agreement?
An asset purchase agreement is a legal contract to buy the assets of a business. It can also be used to purchase specific assets from a business, especially if they are significant in value.
Examples of an asset purchase agreement
Asset purchase agreements are very common in business purchase situations. If a company wants to buy another business, they will utilize an asset purchase agreement to memorialize the terms and conditions of the asset purchases. This document is common in mergers and acquisitions to outline what assets are purchased in addition to purchasing a business.
Another common situation is where a buyer only wants the assets, but not the entire business, if the buyer does not want to assume the liabilities, employees, and other financial responsibilities. The agreements are highly modifiable to fit the unique asset purchase the business wants to undertake.
The purpose of an asset purchase agreement
Asset purchase agreements exist to lay out the details of an asset purchase. Every deal is unique and the specific terms of the contract must be put in writing — the agreement may not be enforceable otherwise. It lets your business get exactly the assets it wants without purchasing anything it does not. It also helps a business limit the potential liabilities it could face.
For example, asset purchase agreements are commonly used to purchase:
Intellectual property
Equipment
Machinery
Businesses
Licenses
Properties
When do I need an asset purchase agreement?
Certain situations require the use of an asset purchase agreement. These include, but are not limited to:
As part of a larger business purchase
To limit the purchase to business assets but not the business itself
To purchase specific assets (especially those of higher value)
In joint venture situations
When a specific asset purchase is not covered by other purchase contracts you have with a company
Parts of an asset purchase agreement
An asset purchase agreement should include several important provisions. What is included in your contract will differ based on your circumstances, but a starting agreement should include:
Party information
The opening section of an asset purchase contract should include the names and contact information for both buyer and seller, as well as the names of business officers or agents who will sign the agreement.
Definitions
The agreement should define any important or unique terms of the agreement. This is especially true when you’re purchasing specific assets, but not all of them. You can also use this section to abbreviate long words or phrases that are repeated in the agreement.
Purchased assets
The asset purchase agreement should specify the specific assets the buyer is purchasing. Often, the contract itself specifies types of assets and outlines the individual items in an attached appendix.
Purchase price
The agreement must state the price you will pay. The contract must be clear and unambiguous as to what price is required for the purchase.
Additional covenants
Covenants are additional agreements within the asset purchase agreement. Additional agreements are common, such as agreements not to compete for a certain period of time or the requirement that the parties take all efforts necessary to transfer licensure and ownership to property.
Warranties or disclaimers
The contract should also include any warranties the seller or buyer are making to one another. These guarantees and warranties are critical to a deal and can have significant ramifications for a business deal as time goes on. This section may also disclaim typical warranties if permitted under state law.
Indemnification
Indemnification provides protections for the parties in case of breach by the other. It states that the breaching party shall indemnify or compensate the non-breaching party to make them whole.
Breach of contract provisions
The asset purchase agreement must specify what constitutes a breach of the contract and the potential effect of a breach. This might include a liquidated damages clause, forum selection clause, choice of law provision, and much more.
Requirements of closing
The requirements to effectuate the closing of the agreement vary based on the circumstances and the assets purchased. This section will include unique requirements that must occur before closing. These could include:
Repairs or modifications to property before sale
Approval of the sale by third parties
Whether closing price changes will occur, and what would trigger those changes
Signature section
The contract should contain a signature section where all parties sign and date the agreement. Absent these signatures, the contract may not be enforceable. In business transactions, it is especially important to identify the name of the signatories, as well as their official title if signing on behalf of a business. Failure to include the officer title could result in individual liability for signatories you never intended.
Limitations of an asset purchase agreement
An asset purchase agreement is a detailed document that often requires significant negotiation. With older negotiation methods like back-and-forth emails, this negotiation process can be time-consuming and filled with errors. Errors in these contracts can have unfavorable results and may even lead to litigation.
An asset purchase agreement will also have to handle the unique challenges involved with transferring assets that require licensure or are subject to third-party contracts.
How to create an asset purchase agreement
You are able to create an effective asset purchase agreement utilizing digital contracting software. This software lets you create template agreements that give you a starting point from which to negotiate. It contains the boilerplate and formatting you want in most asset purchases, which means you don’t have to start from scratch each time.
The software enables you to make real-time edits to the agreement, saving you the frustration of emailing copies back and forth and losing track of different versions. You can even redline the agreement with your counterparty on the same platform. The software can track changes and provide detailed metrics to help you improve your processes.
Managing asset purchase agreements
Businesses that manage asset purchase agreements often find them difficult to keep track of. They need to track important details like asset price lists, purchase details, costs, and the version of the contract. There’s a significant amount of data in these agreements, and it can be almost impossible to manage without sophisticated technology. Ironclad’s contract management system offers you detailed contract data reporting that educates and informs your business decisions.
Too often, asset purchase agreements are stored in separate systems that don’t talk with one another, which makes it difficult to find and track key details. There’s no transparency in the process, and it wastes valuable time.
The software also gives you access to the Contract Data Repository. It can store information such as, but not limited to:
Total asset cost
Workflow suggestions
Template and automation suggestions
Party details
Asset lists
Start and end dates for the contract
Terms and conditions
Appendix and exhibit management
Why asset purchase agreements can be time-consuming and hard to keep track of
Asset purchase agreement often require significant modification in certain areas, but they could just as likely be boilerplate. Many companies still negotiate their asset purchase agreements in back and forth emails, instead of a single platform. This takes a considerable amount of time and effort, and it can be streamlined with the right software.
Automating workflows for asset purchase agreements
With the Ironclad Workflow Designer, you can automate many of the functions of your asset purchase agreements. This includes creating fillable fields for parties, prices, and much more. The software can then track and record these important data metrics for future use. Automated systems can also provide you reminders for important dates in the contract, such as the date of closing. Automation can allow you to streamline your contracting processes by 80% or more.
The solution to your asset purchase agreement needs
Ironclad gives you the software needed to manage asset purchase agreements. You can use customized tools that help you create, modify, and track these purchase contracts:
Integration with Salesforce, DocuSign, and other partners
Why use digital contract management for asset purchase agreements?
Asset purchase agreements help you grow your business and get what you need to run it profitably. They help protect you from liability and outline the details of the transaction to protect both buyer and seller. You can effectively manage your asset purchase agreements to streamline your business and save money.
https://ironcladapp.com/journal/contracts/asset-purchase-agreement/