Legal Guide
Sukhi Hansra December 4, 2023
Whether strategically furthering growth or pursuing an investment opportunity, a business purchase or business sale is one of the most significant, complex and high-pressured processes for any company. Enthusiastic about developing a thorough understanding of our clients' businesses, our Toronto business purchase and sale lawyers provide all parties to a transaction with informed legal advice to help them achieve their business purchase or business sale goals.
Entrepreneurs and business owners often wait until the last minute to make hard decisions about the sale or purchase of a business. Time and preparation are key to developing a clear plan and ensuring that you get the full value of your business. With years of experience in corporate and business law, find out how our lawyers can help you lay the groundwork for a successful business transaction.
A business purchase or business sale is a business transaction that involves the transfer of ownership of a business or certain assets from one party to another party.
In some cases, it can be a simple endeavor. While in other cases it can be a complex and challenging process that requires careful planning, strategy, due diligence and legal support to get the transaction done right.
For this reason, it’s always best to work with an experienced Toronto business lawyer when you’re looking to complete one of these transactions.
Whether you end up going the route of an Asset Purchase or a Share Purchase, there are a few key steps that should take place in almost every business transaction.
These steps are discussed in more detail below:
A letter of intent (LOI, Offer letter, Term Sheet or Memorandum of Understand) is a very brief document outlining the basic understanding between two or more parties which they intend to formalize in a legally binding Purchase Agreement.
These agreements are often non-binding on the parties, so either party can back out. Additionally, they usually focus on setting out the main terms with the primary purpose of seeing if a basic deal can be reached before the parties waste anymore time and money on the transaction.
While a Letter of Intent is not always needed, it plays a fundamental role in most transactions because it helps the buyer and seller achieve the following goals:
It is always best practice to see if you can come to an agreement as early as possible before you end up spending tens of thousands of dollars on a transaction. This way, the earlier that you find out that a transaction is not going to work because the buyer and seller cannot agree, the earlier you can both save your time and money and look elsewhere.
Sometimes we have clients that prepare their own Letters of Intent. In some cases, these work because they allow the buyer and seller to assess whether they are on the same page before proceeding. Additionally, it is a very cost effective way of proceeding with the early stages of a transaction.
While the DIY approach works in some cases, with complex transactions you probably want to speak with an experienced mergers and acquisitions (M&A) lawyer to help you strategize at this stage.
When we help our clients prepare a Letter of Intent, we focus our time on:
Due diligence is an investigation, audit, or review performed to confirm facts or details of the business under consideration.
In the financial world, due diligence requires an examination of financial records, contracts, past actions or inactions, liability risks and more before entering into a proposed transaction with another party.
The goal here is to avoid unforeseen matters when buying a business.
Want a FREE due diligence comprehensive checklist?
We’ve created an excellent due diligence checklist for anyone looking to purchase a business and are happy to give you a copy for FREE.
Just contact us by clicking here or by giving us a call at (416) 580-0345. We would be more than happy to answer your questions and give you some guidance.
When a person is buying a business, they must prepare a Definitive Purchase Agreement. To prepare a Definitive Purchase Agreement, they have a choice to purchase only the assets owned by the corporation or to purchase all of the shares of the corporation.
The choice of whether to complete an Asset Purchase or Share Purchase will usually come down to the Definitive Agreement between the parties.
A Definitive Purchase Agreement (DPA) is a legal document that records the terms and conditions between two companies that enter into an agreement for a transaction. It is a mutually binding contract between the buyer and seller and includes terms and conditions such as assets purchased, money paid, representations and warranties (a legal word meaning “promises”), closing conditions, closing deliverables (i.e. documents needed to close), closing date, etc.
In an Asset Purchase transaction, the vendor company will sell the individual assets to the buyer, rather than selling the the entire company to the buyer. In some cases, the buyer will purchase all of the assets of the vendor company outright, while in other cases, the buyer is only interested in a select few assets that the buyer finds valuable.
The assets that a buyer could purchase include equipment, furniture, licenses, fixtures, trade secrets, trade names, accounts payable and accounts receivable.
To the buyer, the benefits of an Asset Purchase transaction are:
To the buyer, the disadvantages of an Asset Purchase transaction are:
The best way to avoid the disadvantages of an asset purchase transaction and to take advantage of the benefits is to work with an experienced mergers and acquisitions (M&A) lawyer. We know what pitfalls to avoid in advance of you spending tens of thousands of dollars vetting out a transaction that you later find out was a dud.
If you’re interested in buying a business in Toronto, it would be a good idea to contact us by clicking here or by giving us a call at (416) 580-0345. We would be more than happy to answer your questions and give you some guidance.
In a Share Purchase transaction, the shareholders or owners of a vendor company will sell all of their shares to a buyer. This effectively makes the buyer the sole owner of the company.
When you purchase all of the shares of a company, you have to keep in mind that you now become the owner of everything – all of the assets, liabilities, contracts, lawsuits and everything else inbetween.
The advantages to s Share Purchase transaction are:
The main disadvantages of a Share Purchase transaction are:
In a Share Purchase transaction, the best strategy is to widen the due diligence or investigation period into the business. The more you can find out in advance of making a purchase, the more risk you can allocate under the Share Purchase Agreement. This is why your Share Purchase Agreement is so important – it’s the primary document that you use to allocate risk and liabilities.
The best way to avoid the disadvantages of an share purchase transaction and to take advantage of the benefits is to work with an experienced mergers and acquisitions (M&A) lawyer. We know what pitfalls to avoid in advance of you spending tens of thousands of dollars vetting out a transaction that you later find out was a dud.
If you’re interested in buying a business in Toronto, it would be a good idea to contact us by clicking here or by giving us a call at (416) 580-0345. We would be more than happy to answer your questions and give you some guidance.
If you’re buying the Assets of a business, you’ll want to review, analyze and confirm what contracts you are going to be assignment over to your business.
If you’re buying the Shares of a business, you’ll definitely want to know exactly what contracts you’re going to be taking as part of your purchase of the entire business – especially because you have no choice in the matter.
Either way, the typical contracts that are reviewed in a business purchase include any of the following that the buyer would be assuming:
Failing to review of any of these important contracts could mean that you will find yourself in a contractual relationship that you didn’t want. Alternatively, you might have agreed to terms that are disadvantageous to you and that you cannot change after the fact.
With our strong commitment to our clients, we build extended client-care solutions providing much more than corporate advice. Partnering with independent specialists in other practice areas, we ensure our clients only ever work with one cohesive team throughout a deal.
Every client has unique legal needs. Hansra Law recognizes the differing challenges faced by these investors, while business purchase attorneys in Toronto offer corporations with a 360-degree view of the market across mergers & acquisitions (M&A) and equity offerings. Large mergers bring their own challenges. Exceptional knowledge and genuine experience of the Canadian M&A market means that whatever the target, we can support our clients in navigating the process.
National reach doesn’t just mean owning physical sites across the country. From supplier relationships to acquisition financing, whatever your national interests, our business sale lawyers in Toronto will advise on every aspect of your transaction. We offer a seamless service in the way that matters most to you and your business purchase or business sale.
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