Goodwill Purchase Agreement

A goodwill purchase agreement is an agreement to purchase an intangible asset owned by, and associated with, the operation of a business entity. A goodwill purchase agreement is an agreement that is typically entered into in conjunction with an asset purchase agreement, and as part of an acquisition of a company (think mergers and acquisitions). Goodwill is the established reputation of a business – or sometimes even the reputation of the business owner or owners – and is regarded as a quantifiable asset. That is, in an acquisition, part of the purchase price is allocated towards the identifiable assets, both tangible (for example, supplies and inventory) and intangible (for example, intellectual property, such as trademarks, copyrights and trade secrets), and those assets are purchased through the asset purchase agreement. The rest of the purchase price above and beyond the price paid for the identifiable assets is paid for the value of the goodwill that is being purchased by the buyer. Often the seller or sellers of the business who developed the goodwill will continue to work with the buyers for limited time period after the acquisition, to teach the buyers how to run the business, and, in effect, assist in the transfer of the goodwill over from the seller to the buyer.