Disposals: Overview, definition, and example
What are disposals?
Disposals refer to the act of getting rid of or transferring ownership of assets or property. This can include selling, donating, discarding, or otherwise parting with assets that are no longer needed or wanted by a business or individual. Disposals can happen for various reasons, such as business restructuring, upgrades, or simply freeing up capital.
For example, a company may decide to dispose of old machinery that is no longer useful for its operations in order to make room for newer equipment.
Why are disposals important?
Disposals are important because they allow businesses and individuals to manage their resources more efficiently by removing outdated, unnecessary, or underperforming assets. For companies, disposing of assets can help streamline operations, reduce costs, or raise funds. It can also play a role in legal or regulatory compliance, such as when assets must be sold to meet debt obligations or avoid penalties.
Disposals also offer businesses an opportunity to manage their balance sheet more effectively by removing items that are no longer generating value.
Understanding disposals through an example
Imagine a company that has accumulated a large number of old computers and office furniture as part of its expansion. The company no longer needs these assets, as it has upgraded to newer equipment. The company decides to dispose of these old items by selling them to a second-hand dealer. This process not only frees up space but also generates some additional revenue for the company.
In another case, a business is undergoing restructuring and decides to sell off several of its underperforming divisions. The company disposes of these units to focus on its core operations, improving its financial position and making its remaining operations more profitable.
An example of a disposals clause
Here’s how a disposals clause might appear in a contract:
“The Party agrees not to dispose of any assets related to this Agreement without the prior written consent of the other Party. Disposal includes, but is not limited to, the sale, transfer, donation, or destruction of any asset.”
Conclusion
Disposals are a key aspect of managing assets, whether for businesses or individuals. Whether it’s for raising funds, improving operations, or simplifying resource management, disposing of unwanted assets allows companies to focus on what’s important. A well-structured disposal process can also help businesses stay financially healthy, avoid unnecessary costs, and ensure compliance with legal obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.