What should an APA cover when buying a small business?
When a small business is sold through an asset purchase agreement (APA), federal tax guidance generally treats each asset as sold separately and requires both the buyer and the seller to allocate the price among the business assets transferred. On a touch screen, a tap shows all 2 sources in this group.
This guide addresses purchases of profitable businesses with $1 million or less of earnings before interest, taxes, depreciation and amortization (EBITDA), such as online and software businesses, local service businesses and restaurants, and not pre-profit or venture-backed acquisitions; the EBITDA figure is a scope choice, not a legal threshold. The guide covers negotiating, drafting and carrying out the agreement and transferring the assets, not the investigation of the business before signing, for which the OpenAgreements Due Diligence Request List lists documents and information a buyer can request.
This guide is not a 50-state survey; it uses Delaware statutes to illustrate corporate and Uniform Commercial Code rules because Delaware's Division of Corporations reports that over two-thirds of the Fortune 500 call Delaware their corporate home, and it uses California and New York for decisions and statutes that change an asset buyer's exposure, such as California's product-line successor-liability decision and New York's advance notice for bulk sales of business assets.
The asset-by-asset structure matches federal tax guidance, under which the IRS generally treats each asset of a sold business as sold separately for determining the treatment of gain or loss.
For an operating business, the U.S. Small Business Administration (SBA) points a buyer to the contracts, leases, cash flow and inventory of the business. An online business also depends on assets such as its websites, domain names and social-media accounts, which one filed agreement for an online publishing business transferred as listed on a schedule, together with the website content and software code; Buying an App Business treats domain names, provider accounts, code and hosting projects and app-store listings separately.
For licenses and permits, the SBA describes two routes: obtaining them from the current owner or applying for new ones.
Transferring contracts in an asset purchase typically triggers any anti-assignment clause and may require the counterparty's consent, so the parties decide whether closing waits for a missing consent, a lawful interim arrangement applies, or the affected asset is excluded with a price change.
The price allocation has tax consequences for each side, because the IRS requires an allocation of the purchase price to determine the buyer's basis in each acquired asset and the seller's gain or loss on each asset; the allocation question addresses the details.
The underlying contracts, the issuing authorities and the applicable state or industry rules decide whether a particular asset, license or permit transfers; the SBA separately directs a buyer to identify the federal, state and local permits and licenses the business needs.
The questions below run from structure to closing and handover:
- Structure and what is sold: asset or stock purchase, the assets acquired and liabilities left with the seller, schedules, successor liability and liens.
- Who signs and approves: the owner's signature and owner approval of the sale.
- Representations and transfers: revenue figures, ownership of code and content, contributor-owned work, consents, employees, customer obligations, customer data and security representations.
- Price and remedies: a deposit at signing, deferred payment, escrow and holdbacks, closing adjustments, earnouts, tax allocation and recovery for inaccurate representations.
- Signing to closing: protecting the business before closing, the seller's position before closing and what must be ready at signing and closing.
- Transferring online assets: domains, account migration, shared accounts, website and app projects, Apple apps and handover checks.
- After closing: transition assistance, seller non-competes and when the covenant is signed.
- Marketplace sales and standard clauses: a marketplace's standard agreement, sales run through a marketplace and boilerplate clauses.
- Selling or buying an app business: Selling an App Business follows the seller from listing to the period after closing, and Buying an App Business follows the buyer from escrow and diligence to the transfer of each account.
The acquisition financial-model guide and its reusable workbook help separate purchase consideration, financing, closing payments and operating cash requirements.
Sources for this answer
The IRS states that the sale of a business is usually a sale of all of its assets, with each asset generally treated as sold separately for determining gain or loss.
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
See Internal Revenue Service, Sale of a business (accessed Sept. 29, 2026).
The IRS states that, except for assets exchanged under nontaxable exchange rules, both the buyer and the seller of a business must allocate the consideration to each business asset transferred using the residual method.
Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred.
See Internal Revenue Service, Sale of a business, Allocation of consideration paid for a business (accessed Sept. 29, 2026).
The Delaware Division of Corporations reports that more than 2.28 million entities and over two-thirds of the Fortune 500 call Delaware their corporate home.
Delaware offers the most predictable and business-focused legal home in the world, which is why more than 2.28 million entities and over two-thirds of the Fortune 500 call Delaware their corporate home.
See Delaware Division of Corporations, 2025 Annual Report (accessed Sept. 29, 2026).
The California Supreme Court held that a party acquiring a manufacturing business and continuing its product line, in the circumstances presented, assumes strict tort liability for defects in units of that line previously made by the predecessor.
We therefore conclude that a party which acquires a manufacturing business and continues the output of its line of products under the circumstances here presented assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired.
See Ray v. Alad Corp., 19 Cal. 3d 22 (1977).
New York requires a purchaser in a bulk sale of business assets to notify the tax authority at least ten days before taking possession or paying, whether or not taxes are known to be owed.
Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least ten days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the tax commission by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferrer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this article, and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.
See N.Y. Tax Law § 1141(c).
SBA guidance tells a buyer considering an existing business to ask about its contracts, leases, existing cash flow and inventory.
Don’t be afraid to ask questions about contracts, leases, existing cash flow, and inventory.
See U.S. Small Business Administration, Plan your business, Buy an existing business or franchise (accessed Sept. 28, 2026).
SBA guidance states that a buyer of an existing business needs to get any needed licenses and permits from the current owner or apply for them itself.
You’ll need to get any needed licenses and permits from the current owner or apply for them yourself.
See U.S. Small Business Administration, Plan your business, Buy an existing business or franchise, Licenses and permits (accessed Sept. 29, 2026).
SBA guidance directs a buyer of an existing business to find out which federal, state and local permits and licenses the business needs.
Find out which federal, state, and local permits and licenses you’ll need to run your business.
See U.S. Small Business Administration, Plan your business, Buy an existing business or franchise, Licenses and permits (accessed Sept. 29, 2026).
Potomac Law Group explains that in an asset purchase the buyer acquires contracts by assignment, which typically triggers any anti-assignment clause and may require the counterparty's consent.
In an asset purchase, the buyer acquires contracts by assignment, which typically triggers any anti-assignment clause and may require the counterparty’s consent to assignment as a matter of contract law.
See Laurent Campo, The Change of Control Problem Nobody Owns in M&A Until It's Too Late, Potomac Law Group (Feb. 19, 2026).
The IRS instructions state that the purchase price must be allocated to determine the purchaser's basis in each acquired asset and the seller's gain or loss on the transfer of each asset.
An allocation of the purchase price must be made to determine the purchaser's basis in each acquired asset and the seller's gain or loss on the transfer of each asset.
See Internal Revenue Service, Instructions for Form 8594 (rev. Nov. 2021), Allocation of consideration (accessed Sept. 29, 2026).
The Salem agreement transfers the websites, internet domains and social-media accounts listed on Schedule 1.1(d), together with the website content and software code.
(d) Internet Domains, Social Media Accounts. All websites, Internet domains, social media accounts, and their related Uniform Resource Locators (“URLs”) used in the operation of the Business (“Websites”, “Domain Names” and “Social Media Accounts”, respectively) listed on Schedule 1.1(d); (e) Content and Software. All content on the Websites (including all rights and interests of Seller to content created by third parties which is not owned by Seller), including e-mail addresses of registered users, technology, and any master media files in Seller’s possession, as well as all functionality of the Websites, including content management systems, and software codes and enhancements, other than the Shared Code (defined in Section 8.9);
See §1.1(d)–(e)