Those looking to sell a business often immediately think of the SPA, the stock purchase agreement. Logical, as the stock transaction is the most common structure in practice. Yet an APA, the asset/liability transaction, may be a better fit in certain situations.
To help you make an informed choice, here we briefly explain exactly what an APA entails and why this option can be attractive in some cases.
The asset/liability transaction
In an asset/liability transaction, the buyer does not buy shares, but only the specifically agreed assets and liabilities. Unlike an equity transaction - where a sale of 100% of the shares transfers the entire company - an APA transfers only selected components, such as inventory, machinery, contracts, intellectual property or certain liabilities.
This allows the buyer to focus only on the parts that are profitable or strategic for it ("cherry picking"), while the seller retains control and risk over the rest. There is an important exception here for employees.
Delivery by parts: how exactly does that work?
The APA details which assets and liabilities are to be transferred and in what manner. For each part, delivery must be made according to the rules prescribed by law for that purpose. Some examples are:
- Contracts: transfer requires cooperation and often even consent of the other party; without it, the transfer is not legally valid;
- Liabilities and creditors: consent of the creditor is required. If this is not obtained, the seller remains liable;
- Receivables and debtors: notice to debtor is required;
- Business inventory: transfers by actually delivering it;
- IP: In addition to the purchase agreement, registration of the change of ownership in the relevant register is often required;
- Goodwill: is not legally an independently transferable asset. It is transferred through the parts that represent the value of goodwill, such as the name, customer portfolio or supplier contracts.
Because each part must be transferred separately, the practicalities of an APA are often more extensive than an SPA, where the shares are transferred with a single notarized deed. A notary is usually not needed in an APA, unless specific assets require it (think real estate).
Employees: what about that?
An important exception to the rule that in an APA only those parts that parties have mutually agreed upon are transferred concerns the transfer of employees. In the Netherlands, the concept of "transfer of undertaking" protects employees when parts that actually constitute a (partial) undertaking - such as the combination of inventory, customers and goodwill - are transferred to a new owner. In a share transaction, this concept generally does not play a role, because the employer continues to exist as a legal entity and the employment contract remains formally unchanged.
Whether there is a transfer of undertaking depends on the actual circumstances of the transaction - are precisely those assets and liabilities being transferred so that we can speak of a continuation of the old (partial) undertaking under a new banner?
If the acquisition meets these criteria, the rights and obligations from the employment contracts of the affected employees pass to the buyer by operation of law, with accrued rights and history retained. This happens automatically without the employees' consent, and even if the APA itself says nothing about it. Buyer and seller cannot avoid this either, except with the express consent of the employee himself.
When is the APA interesting?
The APA offers more control and flexibility than an SPA: you control which assets and liabilities are transferred and which are left behind, limiting risks of unelected liabilities. The main exception is employees when there is a transfer of business.
This makes the APA especially interesting if you only want to sell part of your business, withhold certain liabilities, or if the buyer only needs specific parts.
