An asset purchase agreement is a contract for the sale and purchase of specific assets of a business. In an asset purchase agreement, the buyer acquires identified assets and the seller retains everything that is not transferred. An asset purchase agreement can cover the sale of an entire operating business, a single division or product line, a portfolio of intellectual property, a book of customer contracts, or individual high-value assets such as equipment, real property, or software. Asset purchase agreements are used across industries — tech, media, creator economy, manufacturing, professional services, and consumer products — and are one of the two principal structures for acquiring a business, alongside a share purchase agreement.
Selecting specific assets and leaving others behind. An asset purchase agreement allows the buyer to acquire only the assets it wants — for example, specific customer contracts, intellectual property, equipment, inventory, and goodwill — and leave behind assets, liabilities, and business lines that do not fit its strategy. This selectivity is often the main reason parties choose an asset purchase agreement over a share purchase agreement.
Managing exposure to historical liabilities. In an asset purchase agreement, the buyer generally assumes only the liabilities it expressly agrees to take on. This gives the buyer more control over exposure to historical liabilities of the business than a share sale, where the buyer inherits the corporation with all of its liabilities.
Selling a division, product line, or non-core business. An asset purchase agreement is the standard tool for selling part of a business — a division, a product line, a portfolio of intellectual property, or a geographic operation — while keeping the rest of the corporation intact. This structure supports corporate carve-outs, strategic divestitures, and clean-ups of non-core operations.
Transferring intellectual property and brand assets. An asset purchase agreement is commonly used to transfer intellectual property, brand assets, and confidential information and data, either as part of a larger business sale or as a standalone transaction. The asset purchase agreement documents the assignment of registered and unregistered rights, the transfer of associated goodwill, and any licensing-back arrangements the seller needs.
Supporting distressed and insolvency transactions. An asset purchase agreement is often used in distressed sales, receiverships, and insolvency-adjacent transactions, where the buyer wants the assets of a business without the corporate entity or its liabilities. Asset purchase agreements in distressed contexts need to be structured with the Bankruptcy and Insolvency Act and related rules in mind.
Business Corporations Act, RSA 2000, c B-9. Alberta’s corporate legislation, which governs the corporate authority of an Alberta corporation to enter into an asset purchase agreement and the shareholder approvals that may be required for a sale of all or substantially all of the corporation’s property.
Canada Business Corporations Act, RSC 1985, c C-44. Canada’s federal corporate legislation, which governs federally incorporated corporations and sets out similar shareholder approval requirements for a sale of all or substantially all of the corporation’s property under an asset purchase agreement.
Sale of Goods Act, RSA 2000, c S-2. Alberta’s legislation governing contracts for the sale of goods, which can apply to the tangible goods component of an asset purchase agreement and can imply terms of quality and fitness where not excluded.
Income Tax Act, RSC 1985, c 1 (5th Supp). Canada’s federal tax legislation, which governs the tax treatment of an asset purchase agreement for both buyer and seller, including the allocation of purchase price among assets, tax considerations, and elections relevant to asset transactions.
Defining purchased and excluded assets. The most frequent issue in an asset purchase agreement is imprecise identification of what is being sold. Asset lists, schedules of contracts, and descriptions of intellectual property need to be drafted in enough detail that third parties — including registries, counterparties, and tax authorities — can identify the assets being transferred. Ambiguity in what is purchased or excluded is a leading source of post-closing disputes under an asset purchase agreement.
Seller title and authority to transfer. Issues can arise if the seller is not entitled or authorized to sell the asset. Gaps in title can arise where intellectual property was never properly assigned, where a prior asset purchase agreement in the chain of title was never completed, where shares or assets are held subject to a trust or nominee arrangement, or where assets are subject to undisclosed security interests, liens, or co-ownership claims. Authority issues can arise where the seller is a corporation that did not obtain the necessary board or shareholder approvals, a partnership acting outside the scope of its partnership agreement, or a trustee or fiduciary without authority to sell.
Transfer of intellectual property and registrations. An asset purchase agreement involving intellectual property needs to address the assignment of registered trademarks, patents, copyrights, and industrial designs, together with recordal of those assignments with the relevant registries. Domain names, social media accounts, source code, trade secrets, and confidential information and data each require different transfer mechanics.
Regulatory licenses, permits, and authorizations. An asset purchase agreement in a regulated industry often involves licenses, permits, and authorizations that cannot be assigned or require regulatory approval to transfer. Liquor licenses, professional permits, broadcasting licenses, and industry-specific authorizations each have their own rules, and the asset purchase agreement needs to address how the buyer will be authorized to operate the business after closing.
Should the buyer do due diligence before signing an asset purchase agreement? Due diligence is generally advisable before signing an asset purchase agreement. Due diligence allows the buyer to confirm that the seller owns the assets, that the assets are free of liens and encumbrances, that contracts and permits can be transferred, and that there are no undisclosed liabilities that will attach to the assets or the buyer post-closing.
What is the difference between an asset purchase agreement and a share purchase agreement? An asset purchase agreement transfers specific assets and assumes specific liabilities, while a share purchase agreement transfers ownership of the corporation itself along with all of its assets and liabilities.
Can an asset purchase agreement be used to sell part of a business? Yes. An asset purchase agreement is the standard tool for selling a division, product line, portfolio of intellectual property, or other defined portion of a business, while leaving the rest of the corporation intact.
What consents are typically required for an asset purchase agreement? An asset purchase agreement often requires third-party consents to assign contracts, leases, licenses, and permits. Shareholder approval may be required under corporate legislation where the asset purchase agreement involves a sale of all or substantially all of the seller’s property. Regulatory approvals may also apply in specific industries or for larger transactions.
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