With respect to anticipated debts, the purchaser generally assumes only a limited amount, including the obligations to be fulfilled under the contracts taken for the closing periods. Accepted liabilities may include certain accumulated debts and expenses resulting from ordinary activity when these items were included in the calculation of potential purchase price adjustments on the closing date. All other debts of the target generally remained with the seller. These debts would either be settled at closing or met by the seller at the regular price. In a merger or acquisition transaction, asset purchase agreements have a number of advantages and disadvantages in relation to the use of a share purchase agreement or a merger agreement. In the event of a share acquisition or merger, the buyer receives all the assets of the target, without exception, but also automatically assumes all the liabilities of the target. An asset acquisition contract not only allows a transaction that transfers only a portion of the assets (which is sometimes desired), but also allows the parties to negotiate what liabilities of the target are explicitly borne by the buyer and allows the buyer to leave behind liabilities that he does not want (or does not know). One of the drawbacks of an asset sale contract is that it can often result in more control changes. For example, contracts entered into by a target company and acquired by a buyer often require consideration in an asset contract, when it is less common for such consent to be required in the context of a share sale or merger agreement.
The purchase price can also be adjusted based on the working capital of the target stock from the reference date, usually calculated between one and three months after closing. It is important to ensure that the terms of sale in the purchase and sale agreement satisfactorily describe how the adjustment of the purchase price is calculated and how disputes are handled. The parties to the sales and sale agreement are (i) the “buyer,” which is usually a new entity created by the principal buyer, (ii) by the “seller” and (iii) by the target company (“destination”). The share purchase agreement is a formal legal document that constitutes a real estate transaction between two parties, in which one party owns the residential buildings, while the other is interested in acquiring the property for investment, trading or leasing purposes. This agreement is a reciprocal agreement between the buyer and the seller, including all transaction-related details, such as the title and address of the property sold, the amount offered for the transaction and other formal details of the transaction. The terms of sale then specify how the buyer will pay the seller. The purchase price can be paid in full in cash, but it is more likely to be paid with a combination of cash (at closing) and seller financing. In this case, the buyer gives the seller a debt ticket for part of the purchase price.
In addition, the purchaser may require that a portion of the purchase price be withheld for a period after closing (a “holdback”) or that the objective meet certain financial objectives in order for a portion of the purchase price to be paid (a “salary”). If there are certain contingencies that the buyer wishes to satisfy after the closing so that the seller receives the balance of the purchase price, the buyer will keep a negotiated part until these contingencies are met.