Over the last 10 years, the sale of digital assets (such as websites, mobile applications, YouTube channels, social accounts etc.) have skyrocketed – therefore increasing the use of digital asset purchase agreements. The main reason being the understanding that online commerce is the future (or should I say the present), which in turn has led to a huge increase in the number of these assets and their sale.

As for the companies or people who were delaying the creation of an digital assets, Covid-19 came along and made the decision for them, resulting in millions more businesses going online.

But despite the increase in the sales of digital assets, most people (including many lawyers) don’t fully know how to go about selling or purchasing an online asset and how to properly draft digital asset purchase agreements – both from a legal and business/technical point. The main reason being that the purchase or sale of digital assets differs in many aspects to the purchase of a physical shop or classic business (like a pizzeria).

In the below mini-article I’ll cover the main aspects that should be covered in digital asset purchase agreements – also known as a “Purchase Agreement of Online Assets” or “buying a website agreement”.

TLTR: the main aspects that you should have in digital asset purchase agreements are: a clear definition of the assets, representations and warrants from each side – but mainly the seller (also sometimes called assurances which basically say: I promise everything is ok with what I’m selling to you), details of the actual transaction / transfer, the compensation (the fees to be paid), liabilities & obligations, training and support, non-compete, Taxes and all the other general sections such as the governing law (which laws will apply).

So, what’s important to include in the Agreement?

* I’ve reviewed the various aspects that need to be covered in digital asset purchase agreements in the order that they usually appear, not necessarily the order of importance – yup, you got to read till the end…

Definitions

Representations and Warrants

These are the legally binding statements given by each side which, in plain words, describe the current situation of the asset or the business.

For example, the seller will need to state/’promise’ things like the fact s/he is the legal owner of the asset and that they have the right to sell it. Or that the business information given to the buyer was accurate.

The buyer needs to state that he has the ability to fulfill his obligations according to the agreement, for example, that he or she has the necessary funds and approval to complete the purchase. Or that they have done the necessary due diligence (the process of checking everything – usually the legal aspects, but not only) and that they are satisfied with the condition and status of the assets.

Both sides need to state that they are currently, and will continue to, comply with all applicable laws and regulations concerning the assets and/or the purchase.

Definition of the Assets

One of the most important sections in digital asset purchase agreements (for both sides, but mainly for the buyer) is the section that defines exactly what is being bought. Otherwise, you (the buyer) might just discover that you’ve purchased a clam without the pearl – which will most probably lead to a dispute and result in a bad investment.

For example, if you’re purchasing an Amazon account, does this include the current inventory associated with the account? Does it include the rights to the brand name of the products sold – or just the account itself? Or if you’re buying an Instagram account, are you buying the brand name as well? Is the account owner allowed to open another account under the same (or similar) brand name?

Or if you’re buying a website, does the purchase include the rights to the logo and all of the content (maybe some content belongs to guest writers)? Does the website or the Amazon account include the Facebook or Instagram accounts associated with them, or are these sold separately? This is crucial because these social media accounts may be what’s driving the traffic to the website and bringing in the sales. This means that if you didn’t include them in the definition of the assets, you’re actually buying something of much lower value, or something that might not continue to generate value for much longer.

The best way to prevent any misunderstandings is to make sure that:

• your attorney has experience with digital asset purchase agreements;
• either you and/or your attorney are familiar with the type of business being purchased, and,
• you clearly define in the agreement everything that can / should be included with the main asset.

The above may seem obvious, but if you’re working with an attorney that has never created their own website or owned any online assets, they are probably not going to be familiar with all the small details such as the hosting accounts, domain names, copywrites etc.

Transfer of Intellectual Property

Once you’ve defined the Assets, the agreement must clearly state that all the intellectual property (legal rights to something – like code or a painting or a YouTube channel) rights associated with the assets, including trademarks, copyrights, patents, and trade secrets, are being transferred from the seller to the buyer (subject of course to the seller getting the payment). This transfer should include any necessary documentation or registration with relevant authorities to ensure the buyer’s full ownership and control. It should also include a section that says that if needed, the seller will sign any documents needed to make sure that the transfer of ownership is completed.

The Purchase Fee

It’s obvious that you need to include the purchase fee. What’s less obvious is how and when the payments should be made. Also, sellers often forget to consult a tax advisor / accountant before completing the sale and are then surprised by how much tax they need to pay.

Ideally, the payment should be made in stages. X amount when signing the agreement, Y amount just before / after control of the account/software/materials has been transferred (if there is a lack of trust, you can use a 3rd party to ‘hold’ the amount), and then a few smaller remaining payments during the transition or training period.

It is also important to clarify how payment is made, the currency (and exchange rate) and who pays the transfer fees (usually each side pays their fees).

Scope of Liability

It is crucial to define the seller’s level of liability. Usually, it is customary to limit the duration and scope of the liability to a specific time and amount (of money), as this may end up being very significant. For example, if you’re selling software, and shortly after the sale it caused damage worth tens or hundreds of thousands of dollars – who is responsible for this damage? Or what happens if the software or website crashes after a week? Who’s responsible? This is one of the most important sections of the agreement.

Taxes

 Following the previous point on taxes, the agreement should outline the tax responsibilities of each party. This includes any sales tax, transfer tax, or other applicable taxes that may arise from the transaction. It is essential to clarify who is responsible for paying these taxes to avoid any future disputes.

Non-compete

To protect the value of the purchased assets, the agreement should include a non-compete section restricting the seller from starting or engaging in a similar business that could directly compete with the buyer. Or at the very least, restrict them for a certain period. The duration and geographical scope (countries/areas) or types of platforms (Facebook, YouTube, Instagram) of this restriction should be reasonable and clearly defined and will depend on the type of business and the local laws (which may prohibit long periods).

Training and Support

Most digital asset purchase agreements will include a section in which the seller agrees to provide training and support to the buyer for a specified period of time after the completion of the sale. This helps ensure a smooth transition and allows the buyer to effectively manage and operate the newly acquired assets. For example, if you bought a website, the training would include showing you how to manage certain features, make changes, upload content etc. If you bought software, then the support might include technical support in the case of errors or bugs for a certain period (part of it might be included in the purchase fee, an additional support period may be given in exchange for a fee).

General Provisions

This section usually contains a few topics, but the most common ones are:

• Governing Law: which jurisdiction’s laws will govern the agreement. Meaning: if things go wrong, in which courts will the dispute be resolved.
• Entire Agreement: a section that states that the agreement is the final understanding between the sides, and it supersedes any prior agreements or representations. This basically means that if there were any other negotiations (verbally or by email), they no longer matter and only this agreement is what counts.
• Amendments: Any changes to the agreement must be made in writing and signed by both parties.
• Severability: If any provision of the agreement is found to be unenforceable, the remaining provisions will continue to be in effect.

Can I draft the online asset purchase agreement myself?

Technically? Yes. Should you? Not really.
If the sale amount is less than $10,000 then the legal costs might not seem worth it, and I understand that, but even then it’s worth at least talking to an attorney because regardless of the money, there might still be legal risks like liability.

And I’m not just saying this to get you to become a client. I don’t care which lawyer you use, but if you’re selling something that you (which shouldn’t be too much) then use an attorney – and make sure it’s one that knows what s/he is doing.

Good luck with the sale / purchase of your digital asset! Feel free to contact us!