In most small and midsize business deals, the buyer’s attorney drafts the first version of the asset purchase agreement, while the seller’s lawyer responds with a markup. The pattern flips in some auction processes, where the seller’s counsel produces the opening draft to set terms across competing bidders.
This article explains who drafts an asset purchase agreement in practice, why the side that writes first holds an early advantage, and what every agreement needs to cover, from asset schedules and price adjustments to the promises, liabilities, and indemnities that decide who pays when a problem surfaces after closing.
Who Drafts the APA and Why the Buyer’s Counsel Usually Goes First
The drafting question has a standard answer in SMB transactions, with a few exceptions worth knowing before negotiations begin. Whoever produces the first draft sets the starting point for every term that follows.
The buyer’s attorney usually prepares the first draft, since the buyer takes on the risk of the assets and wants the document to reflect that exposure.
Drafting first also lets the buyer build in protections from the start, rather than trying to add them later against a seller-friendly template. A handful of situations push the drafting to the seller instead:
- Seller-led auctions, where the seller’s counsel issues one draft to all bidders to keep terms consistent and the process moving
- Deals where the seller already holds a strong, well-built template from prior transactions
- Larger transactions where the seller wants to set the floor on price and risk before buyers weigh in
7 Core Provisions Every APA Should Cover
A complete asset purchase agreement defines exactly what changes hands, what promises stand behind the sale and what happens if those promises fail.
1. Parties, Purchased Assets and Excluded Assets
The agreement opens by naming the parties and the exact assets in play, often including a new entity the buyer forms to hold the purchase. The detail in the asset schedules carries more weight than buyers expect, since vague language here is a frequent source of post-closing disputes:
- Tangible assets such as equipment, inventory, and real property leases
- Intangible assets such as intellectual property, customer contracts, goodwill, and domain names
- Excluded assets the seller keeps, such as corporate minute books, non-transferable licenses, and specific receivables
Spelling out each category protects the buyer from a later argument over whether a given asset was part of the deal.
2. Purchase Price and Payment Terms
The price section sets the headline number and every adjustment that moves it, so the figure at signing rarely matches the cash that changes hands at closing. Adjustments commonly cover a working capital true-up, inventory counts, and accounts receivable.
The section also lays out how the money gets paid and how much sits in reserve against later claims:
- Payment structure, including cash at closing, seller financing, rollover equity where the seller keeps a stake in the buyer’s new company, and earnouts tied to future performance
- Escrow and holdback amounts that set aside part of the price against later claims
- Allocation of the price across asset classes for tax, where both the buyer and seller report the same way
How the Tax Allocation Splits the Price
The price gets divided across the seven asset classes on IRS Form 8594, and the two sides pull in opposite directions. Picture a price of $2 million, the buyer wants more of it tied to equipment and other assets that can depreciate over a few years, since faster write-offs lower its tax bill sooner.
The seller wants more of it tied to goodwill, which is taxed at lower capital-gains rates, and less tied to items that create ordinary income. Both sides report the same split on the form, so the allocation becomes its own negotiation that has to settle on one set of numbers.
3. Representations and Warranties
Representations and warranties are the written promises each side makes about itself and the business, and they form the core of the risk allocation.
The seller’s promises run the longest, covering organization and good standing, authority to sell, clean title to the assets, accurate financial statements, contracts, litigation, IP ownership, taxes, employment, and regulatory compliance. The buyer’s promises are narrower, usually limited to its authority to sign and its ability to fund the purchase.
Two tools shape how far these promises reach: materiality/knowledge qualifiers and disclosure schedules. Materiality and knowledge qualifiers narrow a promise to what matters or to what the seller actually knew, while disclosure schedules list the exceptions that keep a promise accurate.
Buyers usually push to keep those schedules tight, since every added exception narrows their protection.
4. Assumed and Excluded Liabilities
This section sets the boundary on which debts transfer, and the rule is simple: the buyer assumes only what the agreement lists by name, while the seller keeps everything else. Assumed liabilities usually cover ordinary-course payables, the contracts being assigned, and post-closing warranty obligations.
Excluded liabilities usually cover pre-closing taxes, pending litigation, undisclosed debt, and employee claims that pre-date the sale. A buyer reads this section closely, since anything left ambiguous can default into the assumed column and become its problem after closing.
5. Covenants and Closing Conditions
Covenants and closing conditions govern the gap between signing and closing, a period when the business keeps running, but ownership has not moved.
Pre-closing covenants commit the seller to operate in the ordinary course, avoid major changes, and secure third-party consents and lien releases before the closing date. Closing conditions are the requirements each side needs to meet before anyone is obligated to close:
- Accuracy of the representations and performance of the covenants
- No material adverse change, meaning no serious downturn in the business
- Required third-party consents and any regulatory approvals
Termination rights and break provisions complete the section, setting who can exit the deal and on what terms if a condition fails.
6. Indemnification
Indemnification decides who pays when a promise turns out to be wrong after closing, and it usually carries the most negotiation. The terms set how long claims stay open and how much money stands behind them:
- Survival periods, often 12 to 24 months for general promises and longer for tax and fundamental items such as title
- A basket, which works like a deductible, the losses have to clear before the seller owes anything
- A cap, the ceiling on what the seller pays back, commonly 10 to 20 percent of the price in smaller deals
- Escrow is the first place the buyer looks to recover
These four terms decide how much real protection the buyer walks away with, which is why both sides negotiate them hard.
What the Basket and Cap Mean in Dollars
A short example makes the mechanics clear. Say a deal sets a basket of $25,000 and a cap of $200,000 on a price of $1 million. The seller owes nothing until covered losses pass $25,000, and never more than $200,000 in total, so those two numbers define the floor and the ceiling of the buyer’s recovery.
These terms shift with the market: the latest ABA study of private deals found that 41 percent of agreements have no survival period at all for seller’s promises, up from 30 percent in the prior cycle, which shows how negotiable this term has become.
Sandbagging and Exclusive Remedy in Plain Terms
Two clauses quietly decide how indemnification plays out. A sandbagging provision settles whether the buyer can still recover for a broken promise it knew about before closing, with pro-sandbagging language favoring the buyer and anti-sandbagging language favoring the seller.
An exclusive remedy provision makes indemnification the main route for recovery after closing, which keeps both sides inside the agreement rather than in open-ended litigation.
7. Restrictive Covenants and Tax Allocation
The closing pieces protect the value the buyer is paying for and divide the tax outcome. Restrictive covenants stop the seller from competing for customers or staff after the sale, through a non-compete, a non-solicit, and confidentiality terms.
Courts enforce a non-compete only when its scope, geography, and length stay reasonable, so the drafting has to be tailored to the deal rather than copied from a form. Transition services come into play when the seller stays on for a stretch to hand over operations and relationships.
The tax allocation, covered above, divides the price across asset classes and pulls the buyer toward faster write-offs and the seller toward capital-gains treatment, so it becomes its own point of negotiation that both sides then report the same way.
Common Drafting Pitfalls
A few drafting errors show up across deals, and each tends to surface after closing, when fixing it costs the most. Catching them in the draft is far cheaper than arguing over them later:
- Asset schedules that say “all assets used in the business” without listing what that means, which leaves ownership open to argument after closing
- Indemnification baskets and caps that do not match the real size of the risk, so the buyer recovers far less than the problem actually costs
- Missing consent language on contracts that need a counterparty’s sign-off to transfer, which can void a key agreement the moment ownership changes
- Generic templates that ignore industry-specific regulatory requirements, from licensing to data rules, that a specific deal turns on
Where a Strong Asset Purchase Agreement Starts
In most SMB deals, the buyer’s counsel drafts first, and that first draft shapes how price, promises, liabilities, and indemnities get divided. A precise agreement, with clear asset schedules, defined liabilities, and indemnity terms that match the real risk, protects a buyer long after closing.
Legal Dealmakers drafts and negotiates asset purchase agreements with that level of detail. Buyers preparing for a deal can call 844-332-5657 or reach the team through the Contact Us page to get started.
Frequently Asked Questions
A few questions come up in nearly every asset deal. The answers below give buyers a quick reference before drafting starts.
Can the seller draft the first version of an APA?
Yes, most often in auction processes, where the seller’s counsel issues one draft to every bidder to keep terms consistent. In a standard SMB sale, the buyer’s attorney usually drafts first, since the buyer carries the asset risk.
How long does it take to negotiate an APA?
Drafting and negotiation usually run a few weeks to a couple of months, depending on deal size, diligence, cleanliness, and response speed. Open issues from due diligence, third-party consents, or financing tend to extend the timeline before closing.
What is the difference between an APA and a stock purchase agreement?
An APA transfers specific assets and only the liabilities the buyer names. A stock purchase agreement transfers ownership of the company itself, so the buyer takes the business with its history, contracts, and liabilities attached.
Should the buyer and seller use the same attorney?
No. The buyer and seller hold opposing interests in price, risk, and liability, so one attorney cannot represent both without a conflict. Each side needs its own counsel to negotiate the terms that protect it.
