Substantially all assets: Overview, definition, and example
What are substantially all assets?
"Substantially all assets" refers to a significant portion, though not necessarily the entirety, of a company's or individual's assets. It typically implies that the majority of valuable or essential assets are involved, and the remaining assets are a relatively minor part of the total. The term is often used in legal, financial, and business contexts, especially in relation to the sale, transfer, or encumbrance of assets, indicating that the transaction covers nearly everything of value owned, except for a few exclusions.
For example, a company selling "substantially all its assets" might be selling its buildings, machinery, intellectual property, and inventory, while retaining a few minor assets like office furniture or certain contracts.
Why is substantially all assets important?
The concept of "substantially all assets" is important because it determines the scope of a transaction, such as a sale or pledge of assets, and sets the expectations for what is included in the deal. It can be a way of transferring most, but not necessarily all, of the assets of a business or entity, which could impact the value of the transaction or the continuing operations of the company.
For businesses, selling or transferring substantially all assets can have significant tax, legal, and operational implications. It may indicate a business closing down, restructuring, or entering into a merger or acquisition. For buyers, understanding that they are purchasing "substantially all assets" ensures they know what is being included in the transaction.
Understanding substantially all assets through an example
Imagine a technology company that decides to sell "substantially all its assets" to another company. In the sale, the buyer acquires the company's intellectual property, customer databases, office buildings, and manufacturing equipment. However, the seller retains a few assets, such as certain employee contracts and a small piece of land that is not central to the business's operations. While not every single asset is sold, the majority of valuable assets are included in the deal.
In another example, a company facing financial difficulty might decide to sell substantially all its assets to another business as part of a restructuring effort. The buyer receives almost all the company’s key assets, but the seller may exclude some minor or non-core assets, such as certain trademarks or personal property.
An example of a substantially all assets clause
Here’s how a substantially all assets clause might appear in a contract:
“The Seller agrees to transfer substantially all assets of the Company, including but not limited to intellectual property, inventory, real estate, and equipment, except for the following excluded assets: [list of excluded assets].”
Conclusion
"Substantially all assets" refers to the majority of a company’s or individual's assets being involved in a transaction, such as a sale or transfer. While it does not require the transfer of every single asset, it usually includes the core and most valuable assets, with a few minor exclusions. Understanding what constitutes "substantially all assets" is crucial for both parties in a transaction to ensure clarity and set expectations about what is included in the deal.
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.