Startup Asset Purchase Agreement

What a good one includes

• A detailed inventory schedule that explicitly lists all transferred tangible and intangible assets, including proprietary software code, domain names, patents, and physical office equipment.
• A clear clause identifying excluded assets and retained liabilities to ensure the seller remains solely responsible for past debts while keeping any personal property out of the deal.
• A mutually agreed-upon purchase price allocation section that breaks down the valuation of assets for tax reporting purposes under IRS guidelines.
• Comprehensive intellectual property representations and warranties confirming that the startup owns the technology free of any infringement claims or encumbrances.
• An indemnification framework that caps the seller's maximum liability and defines the survival period for any post-closing claims.
• A transition services clause outlining how the founders will assist the buyer with knowledge transfer, training, and customer handoffs immediately after closing.

Common mistakes to avoid

• Failing to explicitly list excluded assets, which can accidentally transfer valuable proprietary tools or secondary domain names to the buyer.
• Neglecting to negotiate a reasonable cap and deductible on indemnification claims, exposing the founders to unlimited financial liability post-sale.
• Overlooking the tax implications of purchase price allocation, resulting in higher-than-expected tax liabilities because capital gains and ordinary income assets were poorly categorized.
• Ignoring the consent requirements of third-party software licenses and customer contracts, which can delay or completely derail the closing process.

Frequently asked questions