Lawyers for Purchasing or Selling a Business in Vancouver, BC
At Pax Law Corporation, we can represent you for the process of purchasing a business or selling your business from the first step to the last. If you are considering buying or selling a business, please reach out to us by scheduling a consultation through our website or by calling our office during our business hours, 9:00 AM – 5:00 PM PDT.
Business Purchase and Sale
A Business Purchase Agreement, Share Purchase Agreement, Asset Purchase Agreement, or Sale of Business Agreement is utilized when an individual or corporation intends to purchase the assets or shares of a company or a business. It specifies essential terms with respect to the transaction, including price, payment plan, warranties, representations, closing date, the parties responsibilities before and after closing, and more.
A well-drafted agreement can protect the rights of both sides of the transaction and reduce the chances of the deal falling apart, while an agreement drafted without the experience of contract law experts can lead to significant losses for one or both of the parties.
If you intend to purchase a business or to sell your business, you will need to consult a professional to assist you with drafting such an agreement. Please remember that lawyers are legal professionals familiar with contract law and able to assist clients with negotiating and drafting agreements, while a real estate agent is a professional with education and expertise in marketing properties and business or finding properties and business.
What is the difference between assets and shares?
Assets are the tangible and intangible property of a business that can be assigned a monetary value, such as client lists, contracts, office furniture, files, inventory, real property, and so on.
Shares represent and individual’s interest in a corporation. A corporation is a legal entity that is separate from any of the people that own shares in it. By selling a number of shares of a corporation, a shareholder can transfer their ownership interest in that corporation to another person. Shares can have various rights in a corporation, such as:
- the right to share in the profits of the corporation, also known as the right to receive dividends;
- the right to vote in selecting the directors of the corporation;
- the right to participate in the corporation’s assets after the corporation has been dissolved (or during the process of dissolution); and
- Various other rights such as the right redemption.
It is important to obtain the assistance of a lawyer during the purchase transaction to make sure you understand the value of what you are buying and to protect yourself from liability.
Can assets be excluded from the purchase agreement?
In a purchase agreement, you can choose to leave assets out of the sale. For instance, cash, securities, accounts receivable, and more can be excluded from the contract.
What are the financial arrangements in a Purchase of Business Agreement?
Each business purchase and sale is unique and will have its own transaction structure. However, you will genereally need to address the following in your agreement:
- Deposit: the amount of money put towards the price of assets or shares paid prior to the Closing Date. This amount is generally forfeited if the buyer refuses to close the deal or is not able to close the deal for a reason that is unacceptable to the seller.
- Closing Date: the day the assets or shares are transferred from the seller to the buyer. This date may or may not coincide with the date control of the business is transferred.
- Payment Options: how the buyer intends to pay the seller, a lump sum, a lump sum plus a Promissory Note for any outstanding amount, or a Promissory Note for the entire amount.
- Possession Date: the date when the inventory is usually counted, the keys are handed over, and control of the business goes to the buyer.
How are shares and assets priced?
Shares can be valued according to two methods:
- Aggregate Purchase Price: also known as Aggregate Exercise Price, this is the entire price paid for all the shares.
- Per Share Purchase Price: calculated by assigning a single share price and multiplying it by the total number of shares to equal the total price.
Even if the purchaser is buying all of the assets from a business, each asset should be assigned its own price for tax purposes. Note that some assets may be taxable depending on your jurisdiction.
There are at least three well-known methods for choosing a price for a business:
- Asset-based valuation: calculated by adding the total value of a business’s assets (including equipment, contracts, accounts receivable, goodwill, etc.) minus the total value of the business’s liabilities (including unpaid invoices, wages, etc.).
- Market-based approach: calculated by comparing the business being sold to similar companies and pricing at a similar price to what those companies sold for.
- Cash-flow approach: Calculated by reviewing the company’s historical earnings and calculating what the business is expected to earn in the future, then discounting the future expected earnings amount to reflect the fact that the price is being paid in the present.
What are the warranties in a Purchase of Business Agreement?
A warranty is a guarantee made by one party to another. You may choose how long each party is bound by the promises.
Each warranty serves a different purpose:
- Non-Competition: a clause that ensures the seller does not compete with the purchaser for a set time period after the close of the purchase.
- Non-Solicitation: a clause that prevents the seller from hiring former employees away from the buyer.
- Confidentiality Clause: a clause intended to prevent the disclosure of proprietary information to outside parties.
- Statement of Environmental Compliance: a statement that removes liability from a purchaser by declaring the buyer is in no breach of any environmental laws.
If needed, you can include additional warranties within your purchase agreement. Depending on your specific needs, different warranties may be necessary to protect your rights. Consulting with knowledgeable business law professionals, like the team at Pax Law, can help you consider all options available to you and choose the best ones.
Who can review the contract terms during the process of buying or selling a business?
The buyer and the seller can confirm their representations (statements of fact) through:
- Officer Certificate: an officer in a corporation or manager of a non-corporate entity
- Legal Opinion: a lawyer who is hired as a third party to review the terms of the purchase
What is a “condition precedent”?
The term “Conditions Precedent” means that certain obligations must be met prior to closing the purchase deal. There are standard conditions that both parties must complete before executing the Purchase of Business Agreement, which include confirming representations and warranties, as well as a series of other tasks in advance of the contract’s closing date.
Other documents you may encounter while buying and selling a business:
- Business Plan: a document used to outline a plan for a new business including competitor and market analyses, marketing strategies, and financial plans.
- Letter of Intent: a non-binding letter used when parties want to have a written understanding for a future agreement to foster good faith.
- Promissory Note: a document that is similar to a Loan Agreement, but is simpler and often used by family members and friends to document personal loans.
Frequently Asked Questions
How should I determine a business’s valuation?
Each business is unique and will require an individualized assessment as to its value. If you are unsure about the value of your business, we recommend that you retain the assistance of a professional to appraise the value of a business you intend to sell or purchase.
Do I need to use a lawyer for the purchase or sale of a business?
You are not legally required to use a lawyer for buying or selling a business. However, your transaction will be more likely to fall apart and more likely to lead to a loss to you if it is done without the assistance of professionals. A lawyer’s experience and education allows them to predict many pitfalls and help you avoid them. Therefore, we strongly require you obtain the assistance of a lawyer in you business purchase and sale.
When is it a good time to sell my business?
The answer depends on your personal life circumstances. There are many reasons to sell a business. However, if you intend to change your career, open a new business, or retire, it might be a good time to sell your business. Furthermore, you may want to sell if you predict that the value or profits of you business will be going down in the future and you have ideas about how to use the proceeds of your sale for higher profits.
When should I tell my employees I plan to sell my business?
We recommend informing your employees as late as possible, preferably after the purchase has been finalized. The buyer may want to employ some or all of your current workers, and informing them about the change is a decision that we recommend you make after consulting with your buyer.
How long does it take to sell a business?
Each business is unique. However, if you have a buyer and you have agreed on a price, the legal process of the sale will take between 1 – 3 months to be properly performed. If you do not have a buyer, there is no set timeline for the sale.
How does a business lawyer for purchasing or selling a business cost?
It depends on the business, the complexity of the transaction, and the experience and law firm of the lawyer. At Pax Law Corporation, our business lawyer charges $350 + applicable taxes as an hourly rate and will assist with some transaction based on a fixed fee (block fee) retainer agreement.