Asset Purchase Agreement

Here is sample language through which only assets are purchased:

1.1 Purchase and Sale of Assets. Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, at Closing (as defined below), all of Seller’s right, title, and interest in and to the assets used or owned by Seller in connection with the operation of the Business (the “Assets”), including, without limitation, the following:

(a) All tangible personal property, furnishings, fixtures, equipment, machinery, parts, accessories, inventory (subject to paragraphs 3.6 and 3.7 below), and any other tangible personal property including such property listed on Schedule 1 (the “Personal Property”);

(b) All contracts, agreements, equipment leases, warranties, and other rights or agreements, whether written or oral;

(c) All of Seller’s right, title, and interest in and to the trade names, logos, copyrights, service marks, trademarks, licenses, and goodwill associated with the Business, including such property listed on Schedule 5 (the “Intangible Property”).

(d) All of Seller’s right, title, and interest in and to the patient list and patient records, in whatever form they exist, including, without limitation, all computer data associated with the records (“Patient files”).

1.2 Excluded Assets. The Assets shall not include, and Buyer shall not acquire any interest in, the assets of Seller or the Business listed on Schedule 2 (the “Excluded Assets”).

1.3 Permitted Liens. Seller shall convey title to the Assets to Buyer free and clear of all liens, security interests, and encumbrances of any kind or nature, other than those items listed on Schedule 3 (the “Permitted Liens”).

1.4 Accounts Receivable. Seller retains ownership to all of the Business’ accounts receivable. At Closing Seller shall provide Buyer with a list of the accounts receivable. Buyer shall make reasonable efforts to cooperate with and assist Seller in collecting the receivables. Seller, however, shall be responsible for any expenses incurred related to collection of the receivables, and Seller alone shall be responsible for their collection. If Buyer treats a patient who has an outstanding balance with Seller as of the Closing Date, all monies collected on behalf of the patient shall be first applied to Buyer's account, with any excess payment being credited to the patient's receivable due to Seller. Buyer shall promptly (within one week) forward to Seller any monies collected by Buyer attributable to Seller’s accounts receivable.

Asset Purchase v. Stock Purchase

Like any other business, an optometry practice can be owned in any one of several forms. In a sole proprietorship the practice is owned by the individual doctor. This is the simplest business form of ownership. Whatever the "business" owns, the doctor owns, because the doctor and the business are one and the same. Similarly, in a partnership the practice is owned by two or more individual doctors, but, again, whatever the partnership owns, generally speaking, the individual partners own. If the partnership is sued, both of the partner-owners are potentially liable for any judgment.

Alternatively, the individual or individuals that own the practice may choose to own and operate it as a distinct and separate entity, either as a corporation or as a limited liability company (LLC) (for purposes of this discussion, the two forms are interchangeable). This concept confuses many people, but it shouldn't. The corporation issues shares of stock to the individual owner(s), and that is the only thing the individuals own -- shares of stock in the corporation. Everything else, e.g. the equipment, the inventory, etc., is owned by the corporation, not by the shareholders.

Thus, if a sole proprietorship optometry practice purchases a new OCT, it is the doctor that owns the practice that is buying and that owns the OCT. Legally speaking, "title" to the OCT is held in the name of the individual that owns the practice. If that person dies, ownership of the OCT passes to his or her heirs just like everything else that the deceased doctor owned.

In contrast, if a corporate optometry practice purchases the same new OCT, the OCT is owned by the corporation, and title to the OCT is held in the name of the corporation. The individual doctor(s) that are the shareholders of the corporation do NOT own the OCT. They have no ownership interest in any of the "things" that the corporation owns. The shareholder's own the corporation, and the corporation owns everything else. The OCT is an "asset" of that corporation, which increases the value of the shares of stock held by the shareholders, but the OCT is not owned by the shareholders. If the shareholder dies, the OCT continues to be owned by the corporation. It is only the shares of stock which pass to the heirs of the deceased doctor, and those heirs become the shareholder(s).

So, what happens when someone wants to buy an optometry practice? That depends on whether the practice being purchased is individually owned, or owned in the corporate or LLC form. If the practice is individually owned, the transaction is simple: the owner sells the various assets of the business (e.g. the inventory, goodwill, equipment, furniture, etc.) to the buyer.

But, there are two ways to purchase a business that is a corporation. One way is to purchase the corporation's stock (or shares, or membership interests in the case of an LLC) from the current shareholder(s). This is accomplished through a Stock Purchase Agreement. The owner or owners of all the outstanding shares of the corporation's stock are sold to the buyer, and the buyer then owns the corporation. There is no change in the ownership of any of the assets of the corporation, no change in the corporation's tax ID number, account numbers, etc. The corporation is unchanged. It just has a new owner.

The problem with a stock purchase is that, because there is no change in the ownership of the business' assets, there is also no change in the responsibility for its debts and liabilities (both known and unknown liabilities, such as a potential lawsuit which has not yet been filed). For that reason, in most cases, the buyer of a corporate optometry practice will purchase the corporation's Assets, not the shares of stock in the corporation. By purchasing the assets from the corporation (not from the doctor/shareholder) the corporation continues to "own" its debts and liabilities. Typically the seller will collect the accounts receivable, pay off all remaining debts, then dissolve the corporation.

Thus, the second way to purchase a corporate optometry practice, and the more common way, is through an Asset Purchase Agreement. In an asset purchase the buyer (which can be an individual or a buying corporation) purchases and acquires title to the assets of the selling business, but none of its debts or liabilities except for those debts or liabilities that are explicitly identified and assumed by the buyer. Click here for sample language you might see in the purchase agreement for an asset purchase.

The "assets" being purchased include the goodwill, furniture, fixtures, equipment, inventory, and everything else of value to the business. As a practical matter, in most cases the selling corporation retains its cash and accounts receivable, so it doesn't sell ALL of its assets, and the purchaser typically agrees to purchase and be responsible for some of the liabilities, such as an ongoing equipment lease or a yellow pages ad. But in an asset purchase agreement, unlike a stock purchase agreement, the buyer can choose exactly what it is buying and what it is not buying. That offers the buyer substantial protection from acquiring unknown or undisclosed debts or liabilities.