Five Things to Consider When Buying a Business in Ontario, Canada
There are many things to consider when buying a business in Canada. In this article, we highlight five important things to consider before finalizing a business sale purchase deal.
1. Are you buying assets or are you buying shares?
You can either buy the shares of a business or you can buy assets.
Shares: When you buy shares of a business, you automatically assume all assets and liabilities of that business. For example, if someone owes money to that business, after the sale has been completed, you have the right to recover those pending payments. Similarly, if the business owes money to third parties or has a pending lawsuit, you assume all those liabilities.
Assets: If you buy only the assets of a business, you can choose which assets you wish to purchase and limit your exposure to certain liabilities. For example, if you wish to buy only the trademark and copyright owned by the seller but do not want to buy the equipment, real estate properties or other assets of the seller, you can execute an asset purchase transaction.
If you want to buy a business, you might need legal advice to decide which option is best suited for you and how to limit your exposure to liabilities.
2. Get the business professionally valued
Before agreeing to the purchase price, it is important to understand how the business has been valued. Sometimes, buyers rely on the seller’s valuation and after the transaction is completed, they may find discrepancies in the seller’s accounts. It is always prudent for buyers to engage independent business valuators.
3. Conduct a due diligence on the Seller and Seller’s business
Before finalizing the deal, buyers should check the sellers’ business history and corporate compliance. This process is called due-diligence. As part of due diligence, buyer’s lawyer checks various corporate documents, commercial compliance, pending legal cases, unpaid loans and registered liens. The lawyer also checks compliance with intellectual property registrations, privacy and anti spam laws. Due diligence is extremely important and should always be completed before finalizing a sale purchase transaction.
4. Have you considered tax issues?
Buyers and Sellers should check tax implications with their business accountants, before finalising the sale purchase transaction. Occasionally, a Buyer’s decision to buy the shares or assets of the business may be influenced by certain tax implications. Tax issues become even more important for non-Canadian buyers. Non-Canadian buyers should clarify whether purchase price includes the tax payable by the Seller (if required) and if non-Canadian buyers intend to purchase assets and set up a business in Canada, they should contact a lawyer and business accountant to understand tax implications.
5. Do you need to comply with other laws or regulations?
Certain professions and businesses need to comply with other laws and regulations. Before buying a business, it is prudent for a buyer to contact a legal professional for advice. Non-Canadian buyers may need to comply with other laws including Competition Act and Investment Canada Act.
If you need advice on business sale or purchase, please contact us.