Buying or Selling an existing business in Ontario
Pawlina Law can assist you with buying or selling a business. When selling or buying a business a number of decisions will need to be made. For example, you may have to decide whether to structure the deal as an asset purchase or a share purchase. In an asset purchase, only the assets of the business are sold. In a share purchase the underlying shares of an incorporated company are sold. Having an experienced business lawyer on your side will help ensure your transaction go smoothly. With any business purchase, you should have a buy-and-sell agreement, signed by both parties, that spells out the demands and obligations of each, as well as the terms of the agreement (for example, non-competition provision). Information on what to consider when buying a business can be found here.
Issues to Consider
There are a number of issues a prospective purchaser must consider before buying a business. Before purchasing any shares or assets, it is important to examine and research the business to ensure you are getting what you bargained for. This examination process is commonly referred to as due diligence and is undertaken to ensure all the facts presented by a seller are correct.
Typically, there are two manners by which a business can be acquired; an Asset Purchase and a Share Purchase. In an Asset Purchase, the buyer only acquires selected assets and most, if not all, of the liabilities, remain with the seller. Conversely, in a Share Purchase, the buyer purchases all the shares of a company, effectively transferring all the company’s assets and liabilities to the purchaser. Tax and legal implications will often dictate whether a business is acquired through an Asset Purchase or a Share Purchase.
When selling property in Ontario, the seller can expect to paid between 3%-5% of the property value to the agents on the transaction. Additionally, the seller and buyer will need to pay a couple thousand dollars each to lawyers to implement the transaction. Buying or selling a business is similar. However, there are no set forms or templates for buying businesses in Ontario.
Receive an instant online estimate on the costs of selling your business using our online Fees Estimator.
Having assisted with dozens of transactions, we have developed a calculator which attempts to give you an estimate of the legal fees you might incur when buying or selling a business in Ontario or Canada; whether buying or selling a business or an asset purchase or share purchaser. Generally, the amount of legal fees spent on buying or selling a business, will be dependent on the time spent on the transaction by a lawyer. Information on what to consider when buying a business can be found here.
The type of Due Diligence required is dependent on a variety of factors including the type of transaction. In an Asset purchase, it will be necessary to determine if there are any liabilities or burdens which the purchaser does not wish to assume so the same may be properly recorded as excluded assets. In a Share Purchase, the purchaser needs to be fully informed of all liabilities, burdens, and problems of the business, since on becoming the owner of the shares, it will be assuming these obligations. Ultimately, the amount of Due Diligence that should be conducted will be dependent on:
- the type of business being acquired;
- the value of the transaction,
- the type of transaction occurring (Share Purchase or Asset Purchase); and
- the level of familiarity of the Purchaser with the company being acquired.
In either an asset or a share purchase, the following preliminary due diligence should be conducted. Conducting this due diligence will help you determine what you should pay for the company, whether you should purchase assets or shares of the company, and what additional investigations and searches should be conducted. Below you will find a list of documents you should collect when conducting your preliminary due diligence. You should not sign any documents prior to retaining counsel. Experienced counsel, such as Pawlina Law, will work with you to help determine the appropriate amount of due diligence that should be conducted.
Retaining a Lawyer
It is important to retain a lawyer to assist with any transaction. Do not sign any document, even a Non-Disclosure Agreement, without first retaining counsel. Should you need a business lawyer to help you with your transaction, please contact us. Experienced counsel, such as Pawlina Law, will work with you to help determine the appropriate amount of due diligence that should be conducted and can help make sure your acquisition or sale goes smoothly.