This is the third blog post in our Business Law Acronym Series that focuses on defining some of the most commonly used acronyms in business law. For this post, we will define three common business agreements: MIPA, SPA, and APA. These terms are similar, but have key differences, as outlined further below.
MIPA
A “MIPA” is a “Membership Interest Purchase Agreement.” A MIPA is used by a member of an LLC to sell all or a portion of his or her membership interest in the LLC to another party. The key terms in a MIPA include the purchase price, instructions for closing, and representations and warranties for each party. In many cases, the LLC will have an Operating Agreement or Buy-Sell Agreement which restricts the transfer of interests in the LLC. The parties will want to ensure that the transfer complies with any applicable restriction, and may want to have the new member execute a subscription agreement expressly accepting the terms of the Operating Agreement or Buy-Sell Agreement.
For more information on LLCs, see our first business law acronym blog post here.
SPA
An “SPA” is a “Stock Purchase Agreement.” This is similar to a MIPA, but is used to transfer stock in a corporation, rather than membership interests in an LLC. The key terms in the SPA will include a purchase price, representations and warranties of both parties, and instructions for closing. It is important to note, the transfer of an interest in a business (whether represented as a membership interest in an LLC or as stock in a corporation) generally must comply with certain federal and state securities laws. The agreement should indicate whether the securities are registered, and if not, should contain a variety of representations and warranties relevant to any applicable exception to the security registration requirements. Corporations may also have a Buy-Sell Agreement that restricts the sale of stock. The parties to the SPA will want to ensure that the transfer complies with all applicable restrictions.
APA
An “APA” is an “Asset Purchase Agreement.” APAs are used to sell all or some of the assets of a business, rather than an interest in the LLC or corporation. APAs can be used by LLCs, corporations, and partnerships. The assets may include tangible property, such as office equipment, a building, and inventory, as well as intangible property, such as intellectual property and goodwill. Key terms of an APA will include the purchase price, a list of assets, and representations and warranties of both parties. In certain circumstances, it may be appropriate to include non-solicitation and non-compete clauses, such as when a business is selling all of its assets and book of business to another entity.
Interested in learning more? Make sure to read Part One and Part Two of our Business Law Acronyms Series.
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