Buying a Business
Whether you are purchasing shares in a company or purchasing a business and its assets, there are many things to consider before signing a contract. From the writing of the contract, to completing the deal, we can assist you along the way.
Below are some of the things you should be aware of when purchasing a business:
1. We often see standard form contracts prepared by realtors for the purchase of a business. Sometimes, these contracts are subject to the preparation of an Asset Purchase Agreement, or Share Purchase Agreement drawn up by the purchaser’s lawyer, but often times, these contracts are not subject to any further agreements. If no further agreements are necessary, it can save on time and costs, but it can also prevent you from having the protection of the common terms in such an agreement. Be sure to have a lawyer review the contract prior to subjects being removed.
2. We always recommend that you conduct due diligence searches (we do this on your behalf when you retain our firm) to ensure that the business has no pending litigation or liens registered against it or its equipment, and is in good standing with WorkSafe, Canada Revenue Agency, and other agencies. To be sure you are protected, we encourage you to add a subject into your contract, or ensure that there is a holdback written into the contract (funds held back from the vendor for up to 4 months pending search results) to deal with any outstanding issues that may come up.
3. Before subjects are removed, be sure that the financial statements of the company or business are reviewed by a qualified accountant. When you buy a company or business, you assume everything – the profits, but also the debts and liabilities. Watch for any debts and shareholders’ loans as these can be unpleasant surprises after completion if you don’t review the financial statements prior to removing subjects.
4. Consider the price allocation when writing up the contract – the price you are paying can be allocated towards goodwill, inventory and equipment. This will affect the taxes you pay on the purchase price, and should be discussed with an accountant and lawyer prior to removing subjects on your contract.
5. When entering the contract, it’s a good idea to make sure that you can assign the contract to another party. This can simply be so that you can choose to purchase in your personal name, or in a company name. This is something you should discuss with your accountant and lawyer prior to removing subjects on your contract. If there is no ability to assign, you may not have the ability to purchase the business under a company name, even if you decide that a company will be more advantageous.
6. Keep in mind, when writing up the contract and determining the purchase price, that there will be adjustments at the time of completion. Common adjustments include, but are not limited to: rent, inventory, or damage deposits.
7. Proper documentation is key. It may seem easy to simply file a Change of Directors with BC Registry Services, or transfer the business into your name, but having the proper documentation to protect yourself is important. If you are buying a company, it is important to have the proper resolutions to support any filings to ensure that the Company is legally in your name. Having a legal professional prepare these documents can save you time and money down the road.
If you do have any questions about purchasing a business or company or have a contract and wish to have it reviewed before subjects are removed, feel free to contact us for a free initial consultation.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice regarding your own situation.
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