Whether you are looking to purchase a business, transfer or sell the business you have built, it is important to know which vehicles are available to you:
- Asset sale
- Sale of shares
- Clauses to include
Also, you should know that, depending on the type of business that you wish to purchase, whether it be a corner store, a restaurant, a bar, a daycare centre or any other type of business, certain special laws may be applicable. Contact us for an overview of such laws and regulations.
An asset sale is the simplest vehicle available. Basically, it consists of purchasing the individual components of the business, namely, the movables, immovables, goodwill, telephone numbers, bank accounts, etc. It is important to conduct a search in the RDPRM to verify whether or not the assets to be purchased are affected by a movable hypothec (chattel mortgage). There may also exist certain bank securities. It is important to refer to your notary in order to avoid problems.
If you are purchasing a substantial portion of a business, you should know that certain debts shall survive the sale, such as payroll deductions, CNESST and other employee-related debts.
Sale of Shares
The sale of shares is predicated on the existence of a corporation (The Business Corporation). It is important to consult with your notary when entering into a sale of shares. Indeed, the purchaser not only purchases what is in the corporation but also the debts and future lawsuits. Your legal adviser can help you set up fund retention mechanisms in order to avoid inconvenient issues. You should know, however, that certain problems – including lawsuits – can last up to 10 years before being extinguished by prescription!
Obviously, this type of situation affects the purchase price. When a purchaser acquires the shares of a company, the sale price will be lower than if the assets of the same company would have been purchased. This could then be very advantageous for a purchaser who is well-informed of the corporation’s activities. For example, an employee who would be interested in purchasing the owner’s interest in the corporation.
Clauses to Include
Whether you opt for an asset sale or the sale of shares, it is recommended that you discuss non-compete, non-solicitation and confidentiality clauses when you sign the offer to purchase. Your legal adviser should propose customized clauses that are specific to your purchase. You wouldn’t want your seller opening a similar store two doors down from your newly acquired business.