Business Law 101 / Asset Purchase Considerations

By Albert L. Kelley, Esq.

So now you have decided whether to purchase stock or assets, you have determined a fair price and you have confirmed that the lease is assignable.  Time to look at other considerations.

Which assets are being purchased?  In some contracts they simply state “all assets”; in others they specify which assets are being transferred and which are not.  Whichever way you choose to go, there should be a complete list of assets attached to the agreement.  This is simply to avoid conflicts later.  It is recommended that the list of assets be detailed.    Rather than just listing “freezer” specify “Whirlpool chest style freezer, Model  __________” or rather that stating “company truck” specify “2010 Ford F150, VIN__________”. This guarantees that you receive the assets you inspected (There have been times when sellers swap out higher quality assets for less expensive ones when the list is not specific). The Buyer should also make a physical inspection of all assets rather than rely on the Seller to just provide a list.  Even if the list is detailed, the assets themselves may not be in good condition, or may not match what the seller lists.  

Another issue is to list things often not thought of. Telephone numbers, wifi accounts, domain names, web pages, facebook accounts, advertising materials.  These assets make it easier for your customers to find you.  Failure to include them can greatly harm the new business.  If customers call the old telephone number and find it disconnected, they are not likely to come back.    Or if the website is not transferred, people may look up the old website and find incorrect information.

What about intellectual property?  This is usually an asset of the business, but may be held by the owner instead.  Intellectual property includes trademarks, copyrights, patents and trade secrets.  These can be extremely valuable and ultimately may eclipse the total value of the business (The value of the trademarks for the Coca Cola company exceed the value of every other asset in the company).  Often owners will create a logo or trademark for the business but register it in their individual name.  The same is true for copyrights, such as T-Shirt designs and advertising copy.  If you buy the assets of the business, these copyrights would not be included unless the owner specifically includes them.  

A related issue is whether the business even owns the trademark or copyrights.  Under the existing copyright laws, ownership of a design or text belongs to the person who created it.  This gets a little confusing.  If a business owner has an idea for a logo and then hires a graphic artist to actually draw it, the graphic artist is deemed the owner of the copyright unless they assign those rights to the business.  The same goes for advertising copy, menu design, etc.  Unless the owner has an assignment of rights from the graphic artist, all they really own is a license to use the design.  And the graphic artist is free to sell the same design to anyone they choose.  

Trade secrets are just that: secrets.  These include client lists, supplier lists, workbooks, and any business method that is not generally known outside the business.  If the business has trade secrets, make sure they have taken steps to protect them, such as making employees sign confidentiality agreements.

Does the sale include fixtures? A fixture is a piece of equipment used for the business that is actually attached to the building.  This can include shelving, cabinets, ceiling fans, etc.  We have already discussed the lease. Now it is time to review it again.  What does it say about fixtures?  Most commercial leases state that fixtures belong to the landlord, and the general rule is that fixtures belong to the landlord when the tenant leaves the proeprty.  However, this is not always the case.  Trade fixtures, that is, those items specifically installed for the business purpose, like hood systems for kitchens, bars, sinks, etc. remain the tenant’s property, unless stated otherwise in the lease.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of “Basics of Business Law” “Basics of Florida’s Small Claims Court” and “Basics of Florida’s Landlord-Tenant Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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