Asset Purchases

• Author: Christopher C. Nicholls
• Profession: Faculty of Law, University of Western Ontario
• Pages: 71-84

71

CHA PTER 3

ASSET PURCHASES

A. INT RODUC TION

Most of this book deals with major share transactions. However, a busi-

ness acquisition can al so be structured as a purchase of the assets used

in a business. A number of the key legal considerations triggered by

asset purchase s will be canvassed brief‌ly in this chapter.

B. PURCHASING ASSETS VS. PURCHASING

HIDDEN OR CONTINGENT LIABILITIES

Why are some business acquisitions structured as share transactions,

and others as asset purchases? It has become a matter of received

wisdom: all else equal, purchasers of a business prefer to buy assets.

But, again, all else equal, sellers prefer to sell shares. This general “r ule”

must allow for so many real-world exceptions that it hardly qualif‌ies as

a rule at all. The kernel of truth emb edded in this otherwise potenti ally

misleading generali zation is that an asset sale enables the purchaser to

identify specif‌ica lly the business assets he or she wishes to purchase,

and to exclude the assets which he or she does not need (and, import-

antly, does not wish to pay for). Perhaps most important of all, when

assets are being acquired, rather than share s in the corporate entity