Buying or Selling a Business in BC

The first key step is to thoroughly research the business to understand its main strengths and weaknesses and evaluate the prospective business you will be buying.

You may want to obtain the following information:

• Financial statements for the last three years - to get a better assessment on the company's value and highlight potential issues
• The seller's asking price and how it compares to your own valuation estimate.
• List of current and past customers
• List of providers - such as, suppliers, vendors, distributors
• List of employees - staffing mix and qualities, tenure, salaries, etc.
• List of contracts or agreements necessary for the operation of the business
• Details of any debts, licenses and liabilities of the business
• How integral is the owner to this business?
• Are there any foreseeable changes in this business or industry?

Deciding on the structure of the deal is basically asking:

• What is being bought - The business's assets or shares?
  • Share sale - the purchase or sale of all of the company's shares
  • Asset sale - the purchase or sale of some or all of the company's assets
• In a share sale the buyer will acquire all the company's assets, liabilities and obligations. In an asset sale, the buyer can be selective and choose the assets they wish to buy. 
• The structure of the transaction is based on many factors. Generally, a buyer will want to buy the assets and a seller will want to sell shares. The buyer may want to buy the assets if there are unknown liabilities in the company. This allows the buyer to "hand-pick" from the company's assets and liabilities. The seller may want to sell the shares because after the share sale, the seller will have no direct responsibility for the company, other than the representations and warranties made in the purchase agreement.
• The structure of the transaction is also driven by tax implications for the buyer and seller. It is important to consult with a tax advisor prior to selecting the structure of the transaction.

The primary goal of due diligence is for the buyer to analyze and assess the legal risks of the target business. This provides the potential buyer with objective information to verify the seller's information, and to determine whether or not to proceed with the transaction.

A lawyer can help the buyer perform a thorough search of government and court records to ensure the seller actually owns the business's assets, and does not owe any debts for which the buyer could be liable.

These searches may include:

• Bankruptcy Office
• Bank of Canada
• BC Safety Authority
• City Hall (taxes, licenses, fire, health, and zoning)
• Court Registries
• Employment Standards Branch
• Land Title Offices
• Registrar of Companies
• Personal Property Registry
• Revenue Canada
• Superintendent of Motor Vehicles
• Workers Compensation Board
• Corporate Capital Tax
• Provincial Sales Tax
• Social Services Tax
• Employer Health Tax
• Insurance Premium Tax

Normally the buyer is responsible for preparing the legal documents, which are sent to the seller's lawyer for review before the transaction can be finalized.

The two main documents that a lawyer will help you prepare include:

1. Letter of Intent (LOI) - This is the initial document between a seller and a prospective buyer that records the main aspects of the deal. The LOI helps direct and facilitate the negotiation of the final terms.
2. Purchase and Sale Agreement - This is the main contractual document that covers in detail: what terms and conditions the buyer and seller are agreeing to, how and when the purchase price will be paid, any restrictions imposed on the seller (i.e. a non-compete clause), and how to address any legal matters that may complicate the process to ensure both parties are protected.