Asset purchase agreement (APA) for a funeral home: what it contains and why it decides the deal

The letter of intent says what two parties hope to do. The asset purchase agreement says what each of them must do, what each swears is true, and who writes the check when something turns out otherwise. In a funeral home sale it is usually the longest document at the closing table, and the one that decides how much of the headline price the seller keeps.

This page defines the APA and the parts that are specific to deathcare. For a clause-by-clause list to take to your attorney, use our APA key-terms checklist.

What does a funeral home APA contain?

A set of standard sections found in any small-business asset purchase, each carrying funeral-specific content. The table maps them.

Why is an asset purchase the usual structure for a funeral home?

Because the buyer chooses which liabilities it takes and gets a fresh tax basis in what it buys. The seller’s entity, with its history, stays with the seller.

Both sides must split the price the same way. Under 26 U.S.C. § 1060, the price in an applicable asset acquisition is allocated among the assets in a prescribed order, and the IRS instructions for Form 8594 require both the buyer and seller to file the form when goodwill or going concern value attaches. Writing the allocation into the APA avoids a later fight over seven asset classes. The trade-offs against a share sale are covered in our comparison of asset sale vs. stock sale.

Licenses are the main exception to “the buyer gets what it buys.” An establishment license generally belongs to an owner and a location, not to the assets. Michigan’s MCL § 339.1806 says a change in ownership of a funeral establishment “automatically cancels its license,” and it counts a change in a majority of shares, so even a stock deal can trigger it there. The APA should make the buyer’s new license a condition to closing; our definition of the funeral establishment license explains the variations.

How does the APA handle preneed contracts?

By having the buyer assume a defined list of contracts and by making regulatory approvals conditions to closing. Preneed is a liability the buyer agrees to perform, backed by funds it must be allowed to control.

The APA should attach the full contract register, state which contracts are assumed, and say what happens to any contract missing from the list. State law then governs the funds. Florida Statutes § 497.458 bars transferring the licensee’s interest in a preneed trust without the prior written approval of the department and the trustee. Under Texas Finance Code Chapter 154, a permit holder must notify the department and the depository or insurer within 7 days after a transfer contract is signed, and a buyer that is not already a permit holder cannot take the prepaid contracts until its own permit issues.

Those rules shape the drafting. Approvals become closing conditions, and any trust shortfall becomes a price adjustment or a specific indemnity. Our guide to preneed when selling a funeral home walks through measuring the shortfall.

How do the price adjustments and indemnities work?

The price adjusts for facts measured at closing, and indemnities cover facts discovered later. Escrow is the pool of money that makes later claims collectible.

Working capital is usually trued up against a target, as our guide to funeral home working capital at closing explains. Indemnity terms then decide how much exposure the seller keeps: a basket sets the threshold before claims are paid, a cap limits the total, and the survival period limits time.

Which representations matter most in a funeral home APA?

The ones that cover regulated activity, because a breach there can cost far more than the asset involved. Each is backed by a disclosure schedule where the seller lists exceptions.

1. Licenses and discipline. Every establishment, crematory, and individual license is current, with no open board complaints except those scheduled.
2. Price disclosures. General Price Lists, casket and outer burial container price lists, and Statements of Funeral Goods and Services Selected were used and kept as the FTC Funeral Rule requires.
3. Preneed. The register is complete, each contract is funded as the state requires, and trust and insurer statements match it.
4. Cremation records. Every cremation had a signed authorization, and the crematory operated under its permits.
5. Environment and facility. No known releases, underground tanks, or violations beyond those listed.
6. Employees. Pay, overtime, and on-call practices complied with wage-and-hour law.

A seller who fills in the schedules completely converts potential indemnity claims into known items the buyer has accepted.

How do sellers, buyers, and lenders each read the APA?

The seller reads it for what can come back after closing, the buyer for what protects it, and the lender for whether the deal fits its rules. Each focuses on different sections.

Sellers concentrate on representations, survival, baskets, caps, and escrow release dates, because those decide how much of the price is truly final. Our guide to what you are still liable for after you sell covers that exposure.

Buyers focus on assumed liabilities, the preneed register, and specific indemnities for known issues, which are often written outside the basket.

Lenders start from the contract itself. Under SBA SOP 50 10 8.1, the Business Purchase Price is the price set by the purchase agreement less the appraised owner-occupied real estate, and that figure drives the lender’s valuation and quality of earnings thresholds. The SOP also prohibits seller earnouts in SBA-financed changes of ownership and limits a seller in an initial acquisition to a consulting role of no more than 24 months, so an APA built around either will need rework.

What mistakes show up in funeral home APAs?

Most are omissions that were obvious in diligence but never made it into the document.

• A register that is not attached. Without a schedule, nobody can say which preneed contracts the buyer assumed.
• Representations without knowledge limits. A seller should not warrant facts it cannot know, such as a predecessor’s record keeping.
• Escrow with no release schedule. Money held “until claims are resolved” can stay held for years.
• Allocation left blank. The buyer and seller then file Form 8594 on different numbers.
• Licensing treated as paperwork. If the new license is not a condition to closing, the buyer may own a business it cannot legally operate.
• Legacy and non-compete terms left in the LOI. They need duration, remedy, and successor language in the APA to bind anyone.

For where the APA sits in the full sale sequence, start with our owner’s guide to selling a funeral home.