Buying or Selling a Business
After you find an attractive business to buy or decide to sell your business, there are many steps you must take to ensure a smooth transaction. They include determining how to purchase or sell the business, signing an Offer to Purchase, completing due diligence, preparing documents to complete the deal, raising the purchase money, and closing the deal.
Offer to Purchase
The purchase or sale of a business is a complicated transaction and it is important to have a properly drafted Offer to Purchase in place. To adequately protect your interests, the Offer to Purchase must address all of the elements important to the purchase or sale.
We strongly recommend seeking legal advice before signing an Offer to Purchase or selling a business. Once an Offer to Purchase is signed, the parties to the agreement are bound to all the terms. If an important provision was missed, amending the agreement after the fact can be difficult if not impossible.
Share Sale vs. Asset Sale
There are two ways to sell or acquire a business:
- Purchase the shares, or;
- Purchase the assets.
A seller will generally prefer to sell the shares of a corporation. It is typically more tax advantageous, particularly if the lifetime capital gains exemption is available to the seller.
From the buyer’s perspective, a share purchase is less attractive. Buying shares means all of the liabilities of the corporation remain intact. As a result, the business could become saddled with liability that was not disclosed or unknown at the time the shares were purchased.
A buyer will generally prefer to purchase the assets of a corporation. Purchasing the assets allows a buyer to continue the business without assuming the liabilities of the company.
By consulting with Galbraith Law, we can help you develop a strategy and ensure that the Offer to Purchase is properly drafted.
Once the Offer to Purchase is signed, there is due diligence to complete. As a purchaser, you will review the financial statements and general affairs of the business you are considering. We can assist by performing searches and reviewing any material contracts. This includes reviewing any Lease Agreements as well as other supply and service contracts to determine whether or not a change in control in the business will effect the enforceability of these contracts. Additionally, the due diligence period is a good time to ensure that the business can legally operate from its premises and does not have any outstanding orders issued by a government department or agency.
As a seller, you will be asked to produce documents and provide your consent to appropriate searches. We can assist in preparing the necessary consents and advising on which production and consents are necessary and appropriate.
Closing the Deal
Our focus at Galbraith Law is completing the deal. We will ensure that documents are prepared using plain-language while still protecting the interests of our clients.
Some other considerations to keep in mind when closing the deal include:
- Considering whether a Non-Competition and Non-Solicitation Agreement is required to protect the business from previous owners taking away clients of the business that you paid for.
- Having properly drafted documents to ensure that all of the assets that you have paid for are properly transferred to you.
- Obtaining the assignment of all contracts which are critical to the continued operation of the business.