Part 1: What you need to know about the Amazon FBA Asset Purchase Agreement | Tarter Krinsky & Drogin LLP

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In the United States, most transactions involving the purchase of an Amazon FBA business involve the purchase of business assets as opposed to the entire business. These transactions are known as Asset Purchase Agreements and are conducted through an Asset Purchase Agreement (APA).

The APA is the primary contract between an Amazon store owner (the seller) and the buyer of all relevant assets of the seller’s Amazon FBA business. The APA defines what is being sold, the details of the sales process and the obligations of the parties. Among its central terms, it sets out the specific assets being purchased – such as inventory, equipment, contracts, goodwill or inventory – the purchase price and payment terms.

The asset transaction

In an asset acquisition, the buyer purchases specific assets and liabilities of the seller’s FBA business. The APA will list both assets and liabilities purchased and those that are not purchased. This is very different from a stock purchase agreement (also known as a stock ownership agreement), whereby the buyer acquires a seller’s entire equity interest in the entire FBA company, which matches all assets and liabilities of the company. After an asset purchase transaction closes, the buyer and seller retain their respective corporate structures and the seller retains the assets and liabilities not purchased by the buyer. The key point of an APP is that both seller and buyer have the ability to include or exclude specific assets and liabilities from the transaction.

Why aggregators may prefer an asset transaction

Often, Amazon aggregators prefer asset transactions because they can choose which assets to buy without incurring other known or unknown liabilities that would normally and automatically be included in an equity transaction. The benefits of an asset transaction from an aggregator perspective include:

  • The flexibility to choose assets and liabilities specific to the FBA activity;
  • No money wasted on unwanted assets;
  • Lower risk of assuming unknown or undisclosed liabilities; and
  • Often better tax treatment than stock acquisitions.

On the other hand, this may be a choice less favored by the seller since:

  • The seller may end up with unattractive assets and liabilities not assumed by the buyer; and
  • The seller may benefit from better tax treatment when selling shares compared to selling assets.

Occasionally, aggregators are willing to accommodate a seller’s request to structure the acquisition as an equity transaction. This could be because after the transaction closes, one or more of the seller’s principals will be employed by the aggregator and the aggregator may be interested in offering the seller a more tax-efficient transaction in the spirit of a good post-transaction relationship. An aggregator may also prefer a stock purchase to avoid the risk of inadvertently missing out on assets critical to the purchased business or triggering the termination of key FBA business relationships, such as with suppliers and the key personnel. These risks are considerably limited in stock acquisitions where the buyer acquires all the assets, rights and liabilities of the target company.

Yet selling an FBA business through a stock purchase often comes with a downside for the business owner. Because the buyer acquires unwanted liabilities and loses favorable tax treatment, the buyer is likely to pay less for a business acquired through a stock purchase as opposed to a structured transaction such as a stock purchase. assets. Additionally, since the buyer acquires all known and unknown debts from the seller in an equity transaction, the due diligence for the transaction is likely to be longer and more expensive.

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