If you are planning to sell a business, it is important to consult with a lawyer at the very early stages of the transaction. A lawyer can advise you on how to structure the sale to achieve your business goals and minimize the costs of the transaction and resulting liabilities.

Business Share or Asset Purchase

Legally, the sale of a business can be accomplished by either a share purchase (for companies only) or by an asset purchase. In an asset purchase, the parties can choose which specific assets and liabilities will be acquired and the transaction is completed by way of an Asset Purchase Agreement. In a share transfer, unless the company is stripped of certain assets and liabilities prior to the transaction, the purchaser assumes all assets and liabilities of the company. The share transfer is completed by way of a Share Transfer Agreement.

Types of asset transfers

The mechanics of the transaction will differ depending on whether you choose a share transfer or asset purchase.

A share transfer typically involves all of the following: an application for the transfer of the shares, the execution and delivery of an instrument of transfer, resolutions and approvals for the transfer, the issuance of new share certificates, the registration of the transfer in the corporate minute book, and documentation for changing the board of directors.

Types of business assets

Depending on the type of assets acquired, a transfer of assets can add greater complexity, costs, and time to a transaction than a share transfer. For example, the purchaser may need to obtain the consent of a third party where the transaction involves the transfer of a lease, license, authorization or permit, which may prolong the completion of the transaction. An asset purchase can also involve extensive costs that would not result from a share transfer, including taxes. However, these costs are generally borne by the purchaser.

Business shareholders

As the vendor, some considerations to keep in mind include whether all shareholders are willing to transfer their shares to the buyers. If there are minority shareholders who oppose the transfer of shares, they can prevent the whole sale of the business. If however, the minority shareholders hold less than 25% or 33.33% (which will depend on the company’s articles), they can be defeated by way of a special resolution so long as is obtained within the stipulations of s. 301 of the Business Corporations Act.

Employees

With respect to your employees, where the business is sold by way of share transfer, the purchaser will assume all of the company’s employees and its existing employment contracts. However, if the purchase is completed by way of asset purchase, generally the purchaser can select which employees it would like to continue to employ, although this ability may be limited by a collective bargaining agreement. The purchaser may prefer this if they plan to restructure the company by downsizing, automatizing positions, or amalgamating positions under another business.

Need legal help to sell your business?

While the choice between share purchase and asset purchase may seem like a complicated one, with years of experience in advising business owners, M.J. O’Nions, Lawyer & Mediator can recommend the best option for your business and advise you through all steps of the transaction. Please contact us at 604-449-7779 to set up a meeting.