Asset Purchase Agreement vs. Business Sale:
Your Options as a Small Business Owner

Sell to 3rd Party / Sell To Employees / Asset Sale / Succession Plan / Dissolution

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You know that you’re ready to step away from your business, but you’re not sure of the best path forward. One of the first decisions to make on this journey is whether you want to sell the entire business to someone else or whether you want to sell off some or all of its assets. In many cases, this decision may be made for you if you find that there’s little demand for a business like yours.

If that’s the case, selling the assets may provide a positive financial outcome. This Guide will explain the difference between selling a business entity versus an asset purchase agreement and how to prepare for selling assets owned by the business.

Preparing to Sell a Small Business

When you set up your business, you likely created an entity such as a corporation, LLC, a partnership, etc. That entity owns the assets of your business and is also responsible for the liabilities such as paying taxes, vendors and employees.

Selling your business is different than selling the assets owned by your business. When a business is sold, the buyer is acquiring all of the assets and liabilities of the business.

When you go through the process of preparing the information required to sell a small business, having a professional perform a valuation is often the main factor that determines if your expectations are in line with what the market is willing to pay. While a valuation is not a guarantee for what a buyer will (or will not) pay, it does provide an objective view on the potential outcome.

If you have not gone through the process of preparing to sell your business, please refer to our other guide Preparing to Sell a Small Business for an overview of what steps you can take.

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Selling the Assets of a Business

According to Investopedia, a business asset is an item of value owned by a company. Business assets span many categories. They can be physical, tangible goods, such as vehicles, real estate, computers, office furniture, and other fixtures, or intangible items, such as intellectual property.

These assets have a market value that is reflected on your balance sheet. However, not all assets are necessarily on the balance sheet— things like intellectual property, customer lists and business know-how have a value but may not appear on your balance sheet.

The Guide will cover the sale of assets and explain the difference between selling your business versus selling the assets. If you plan to sell just the assets, you will most likely need to dissolve the business entity and ExitGuide’s How to Dissolve guide explains this process.

Common Assets Sold:

Generally speaking, there are tangible (equipment, real estate, furniture) and intangible assets (software, intellectual property, cash on hand). If you have a personal item, maybe a laptop or piece of furniture for example, that you paid for personally but use for business purposes, it is not considered a business asset unless you or your bookkeeper recorded a transaction in which the business purchased the item.

It is important that when selling assets, proceeds are deposited into your business checking account. Whether it is cash, check, a credit card transaction or ETF, keep the proceeds from the business separate from your personal checking accounts to save yourself the headache of trying to sort this out later.

What Types of Assets Can You Sell?

The short answer is just about anything that is owned by the business. Depending on your business, you may not have assets in the categories below. A bakery may have special equipment as well as delivery vehicles whereas an accounting firm may lease office space and have very few tangible assets, yet they have a longstanding client list and bespoke software related to their work that has value to a new owner.

How To Track The Assets Sold

Assets are organized into the following categories on a balance sheet, and a bookkeeper or accountant will update the value of these assets on an annual basis as things like cash balance may increase and equipment may depreciate in value over time.

  • Property, Plant & Equipment (PPE)
  • Inventory
  • Vehicles
  • Furniture & Office Equipment
  • Patents (Intellectual Property)
  • Accounts Receivable
  • Cash

When you sell an asset, you will record the date, the purchase price and buyer and this will tie back to the date and price the business paid for the asset. This keeps things organized and makes preparing a final tax return much easier.

Asset Purchase vs. Stock Purchase

Selling your business is different than selling the assets owned by your business. When a business is sold, the buyer is acquiring all of the assets and liabilities of the business. This may be done as a stock purchase agreement or similar purchase agreement.

As asset purchase comes into play when a buyer is interested in some or all of the assets but is unwilling to assume the liabilities. The proceeds from the sale of the assets are often used to pay down the liabilities to ensure the business is solvent before filing for dissolution. For more about dissolving a business, please check out How to Dissolve a Business.

What Is an Asset Purchase Agreement?

An Asset Purchase Agreement (APA) is a legal agreement for a third party (individual or entity) seeking to purchase all or a significant portion of the key assets of the business. This is different than liquidating the assets, which is covered later in this guide. An asset purchase agreement allows a buyer to purchase select pieces of the business without incurring any liabilities and a buyer may also want to ensure they get all the pieces in the transaction. In other words, an APA can be an “all or nothing” transaction in which the buyer will only agree to acquire a group of assets together or nothing.

It is wise to seek legal representation when negotiating an asset purchase agreement because the agreement will contain more than a purchase price for the acquired assets. An APA is a legal agreement that contains clauses including:

  • Purchase price
  • Purchased assets
  • Representations and Warranties
  • Transfer of Title
  • Indemnification

Common Elements of an Asset Purchase Agreement

Having an attorney draft an asset purchase agreement is a good idea and knowing what is in the agreement will help you ensure that the agreement represents your interests and protects you and your business. While the price is important, it is essential you also understand the following terms found in most asset purchase agreements.

Bill of Sale

You will want to have a bill of sale for each item sold that clearly states the transfer of the asset from the seller to the buyer. This should include a name for the item, a description, price and date.

Schedule of Purchased Assets

Typically, a schedule is attached to a legal agreement, you may see references like, “as provided in Schedule A” in the main body of the APA. The schedule(s) are then attached to provide more detail, like a list of the assets. In some cases, there may be more than one schedule such as one for Purchased Assets and another schedule for Excluded Assets.

Transfer of Title

If the APA includes things like automobiles or property, the titles for each item must be signed over from the seller to the buyer. A buyer will want to see the titles in advance of executing the APA as proof that the business is listed on the title and can be transferred without any conditions.

Excluded Assets

Remember, you are not obliged to sell items or to sell items to a particular buyer. If you have specific items you are not planning to include, list these as Excluded Assets. Assuming a buyer has the same understanding is an unnecessary risk that is easily avoided with a clear list of these items in the Excluded Assets.

Representation & Warranties

Unless your agreement clearly states that any and all items are sold to a buyer “as is,” then your APA will have a section for representations and warranties. While this may seem like a “legal issue,” this is most certainly a business term you want to understand before signing any agreement.

“A representation is an assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action. A warranty is a promise of indemnity if the assertion is false. The terms "representation" and "warranty" are often used together in practice. If a representation is not true it is "inaccurate." If a warranty is not true it is "breached".“
Thompson Reuters Practical Law

Why is this so important to understand? Basically this is you and your business legally stating the condition of an asset, how an asset may perform or operate and/or other statements intended to give the buyer assurances of the asset they are buying. In short, this section is the “it is what you say it is, works the way you say it works.”

Payment Terms

A buyer may be financing a purchase or request payments be made in installments or even based on certain conditions. Obviously, you need a clear understanding of both the purchase price as well as when and how payments are made. Make sure this is clearly stated with specific dates or milestones and accounts for what happens in the event a payment is not made in full.

Liquidation of Assets

If you do not have a single buyer (or two) seeking to purchase a group of key assets, you may wish to pursue selling the assets in the open market, or allowing individuals or entities to buy one or a handful of items. In this case, the goal is simply to generate enough proceeds to cover the outstanding liabilities. If you are able to do this and have some money left over, even better. Expect buyers that are seeking a bargain if you go this route and while you may not get the price you wish, generating enough cash to pay down any liabilities is the main goal.

Preparing to Sell Business Assets

Step 1: List the Assets You Want to Liquidate

Running a current balance sheet and ensuring it is up to date is the best first step. If it is not current, take the time to bring it up to date and engage a CPA if you have questions about depreciation of certain assets. The balance sheet will become the list for most, if not all, the assets you wish to liquidate. Once the items are sold, you or your bookkeeper will reflect the change on your balance sheet.

You may find it helpful to drop the balance sheet into a spreadsheet so you can track activity like asking price, sale price, buyer, form of payment, buyer contact information etc.

Step 2: Market the Assets for Sale

Once you have a list of items you plan to liquidate, think about what questions a buyer may have if they are interested. Taking pictures of select items and listing the brand, year,model and measurements of items will make things easier on you and allow you to focus on the most qualified buyers.

If you want to make sure you are doing everything you can to get top dollar, take time to clean items and take quality images. Just about any smart phone will take a quality image, but consider the lighting or placing a sheet as a backdrop to showcase the item instead of a backdrop of clutter.

A few tips to help spread the word and attract the most buyers:

  • Develop a list of industry contacts that may be potential buyers or know of potential buyers. Send a personalized email to your best contacts that includes what you are selling and asks them to share with others.
  • If you belong to a business networking group or local industry group, check to see if they have an email newsletter or section of their site for listing items. The local chamber of commerce may have suggestions for you as well— it’s worth asking.
  • Depending on the assets, running a local ad can be helpful. You may find buyers outside your industry for assets such as furniture, small office equipment, supplies and other general items.
  • Consider a donation to a local charity. Many have a great need for things like desks, chairs, office supplies and computers.

Step 3: Prepare for Due Diligence on Key Assets

Selling office furniture or general items is likely a straight forward transaction. When it comes to specialty equipment, vehicles, inventory or intellectual property, having documentation, warranties and service records will help fetch the best price and is a factor when it comes to any representations and warranties or liabilities that are part of the asset purchase agreement.

Special Considerations for Business Types

We have covered the basics for both an asset purchase agreement and liquidations of assets. All of which is relevant to any business. However, there are a few things to keep in mind when it comes to selling business assets based on the type of entity of your business.

ExitGuide recommends seeking the advice of a professional tax attorney or CPA regarding the tax implications of selling assets based on the type of business and ownership structure. It is advisable that you do this before you enter into an asset purchase agreement or sell any major assets owned by the business.

Whether you are a sole proprietor, a partial owner through a partnership, an LLC or have a corporate entity, you want to ensure you understand the tax implications before any transaction takes place. You can find resources online that cover topics such as the difference between capital assets, capital losses, non-capital assets and depreciation capture. Working with an experienced professional to advise you on the best approach for both the business and your personal tax situation is a smart move.

We hope this guide has provided you with a basic understanding of the difference between selling your business versus selling the assets owned by your business. Developing a plan will help you prepare as well as select an approach that takes all factors into consideration. ExitGuide can help you develop an exit plan to sell your business, pass it down to family members, prepare for an asset purchase agreement or liquidation of assets. Learn more here.


Transitioning out of your own business can be confusing and emotional. You have invested a lot into your business and taking steps to exit is not easy, in fact, most owners have never been through the process. You do not have to “figure it out” on your own. ExitGuide helps owners from start to finish by answering basic questions about the process, helping you develop a plan specific to your circumstances and then connecting you with expert resources to guide you to a successful outcome.

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