Have you decided to purchase a business?
If you are interested in or considering buying or selling a business, please refer to Buying a Business in Manitoba for further information.
After you have identified a business that you are interested in purchasing, whether that be a standalone business, a business with multiple locations, a company with a variety of operations, or a franchise, and have had initial discussions with your lawyer and set out the business terms of the transaction. Your lawyer will now begin to prepare the purchase agreement.
Below are some standard considerations and terms that are generally contemplated by and/or contained in purchase agreements.
Standard terms and elements of a transaction
Tax Implications
There are many important tax issues to consider when buying a business. The tax implications of an asset purchase transaction differ from the tax implications of a share purchase transaction. It is important to consult a tax professional when determining how to structure the transaction. Your lawyer and tax professional can work together to ensure that your existing needs and the intention of your business operations are met.
Lawyers often work with other professionals, including tax professionals, in a variety of different matters. As a result, your Pitblado lawyer has a wide-ranging network and can connect you with someone who is able to best suit your needs. If you require a referral from a tax professional, do not hesitate to reach out to them for further information.
Financing
If you are funding all or a portion of the purchase of the business through proceeds obtained from a third-party lender, such as a bank, credit union or private lender, obtaining such financing should be listed as a “condition” in the purchase agreement. That is, you will want to be able to cancel the deal if financing cannot be obtained.
Generally, third-party financing will require you as the purchaser to provide certain assurances as well as certain security prior to receiving the funds to purchase the business. Your lawyer will be able to help review and navigate the loan and security documents required by the third-party lender.
Representations and Warranties
Your lawyer will ensure the agreement includes a list of representations and warranties about the business you are purchasing as well as the seller you are purchasing the business from. Representations (statements of fact) and warranties (promises made) set out certain details the purchaser relies on. Similarly, the purchaser will provide representations and warranties to the seller.
Representations and warranties are fundamental to most purchase agreements.
Contracts and Excluded Assets
In some business transactions, not all assets will be included in the purchase. Certain assets, typically those that are not essential to the operation of the business or that the purchaser does not wish to acquire, may be excluded from the sale. Examples of excluded assets can include obsolete inventory, personal property and/or certain types of service contracts.
All contracts that are part of the business’s operations – such as supplier agreements, leases, employment contracts, and customer contracts – should be reviewed carefully. You should assess whether you, as the purchaser, wish to assume these contracts as part of the transaction or if you intend to terminate or renegotiate them. Your lawyer will review the contracts to determine whether they can be assigned or terminated and to point out any unreasonable terms.
It is important to obtain and review the comprehensive list of all assets, including contracts, being included in the transaction and those that are excluded. This ensures both parties have a clear understanding of what is part of the sale.
Consents and Approvals
To successfully complete the transaction, it is likely that the purchase agreement will require various consents and approvals. The specific consents and approvals required will vary depending on the nature of the business and the jurisdiction. Examples of consents and approvals include:
- corporate approvals (approval from relevant corporate entities regarding the purchase agreement and transaction)
- regulatory approvals (governmental consent, if applicable)
- contractual consents (consents and/or assignment of business contracts being transferred).
The nature and extent of all consents and approvals have a crucial bearing on the timing of the transaction. Some approvals, particularly regulatory approvals or third-party consents can take time to obtain. Your lawyer will be able to understand the consents and approvals needed and avoid unnecessary delays and complications, to ensure that the transaction is completed successfully and on time.
Conclusion
As you can appreciate, some various considerations and terms need to be included in the purchase agreement. A good business lawyer will be able to assist with the negotiating and drafting of the purchase agreement that provides sufficient disclosure and protection of your interests. You should expect your lawyer to respond quickly to your questions and concerns throughout the process.
If you are interested in purchasing or selling a business, please contact:
Elizabeth Czyrnyj
Lawyer
204.956.3548
[email protected]
