Buying a business is not quite as simple as going to the grocery store, picking something off the shelf, pulling out the old debit card and walking away happily with your new purchase in a bag. Once you have entered into negotiations with a business owner to acquire the business, you must turn your mind to a variety of issues long before the purchase is actually made. Addressing delicate matters sooner rather than later will allow you to discern whether this potential deal will actually become firm or not and it will allow you to structure the deal in a manner that is advantageous to you.

Broadly speaking, there are two ways to purchase a business (assuming the business has been incorporated). One method is to purchase the assets of the business. The other method is to purchase all of the outstanding shares of the corporation that owns the assets and runs the business. There is no 'one-size-fits-all' course of action. There are pros and cons to both routes.

The decision of which method to proceed with, will be largely dependent on the business considerations surrounding those pros and cons and which side of the transaction you are on. One integral consideration which falls beyond the scope of this article would be the tax implications of each method. In addition to considering the factors that will be briefly touched on below, it would be prudent to seek professional advice about tax issues when making the decision of how to structure the acquisition of an existing business.

The default course of action for purchasers will often be to acquire the assets of the business. This scenario affords the purchaser the ability to choose only those assets they are interested in, without incurring additional costs for the assets that may not be integral to the business plan. Moreover, in an asset purchase, the purchaser will only assume those liabilities that are attached to the assets being purchased. For the prudent, risk-averse purchaser, this route will provide for more comfort as it will allow the purchaser to avoid acquiring additional liabilities whether they are known or not at the time of the transaction.

In contrast, vendors will often prefer a purchaser to buy the shares of the corporation that owns the assets and runs the business. In this scenario, the purchaser is actually buying the whole company – all of the assets and all of the liabilities (whether known or not). As you can imagine, a purchaser must be vigilant in conducting their due diligence to ensure they are not acquiring more trouble than the company is worth. This method allows the vendor to have a clean break from the business but can have serious implications for a purchaser. It is not surprising that vendors prefer to sell the shares whereas purchasers often lean towards purchasing the assets of the business.

While the above default positions will often be the initial choices of vendors and purchasers, there are a number of factors that must be considered when deciding how to arrange a transaction. The default positions are merely a starting point and should not be clung to unless there is good reason to do so. Finding the ideal way to structure a transaction must take into account the particular circumstances of the business as well as the purchaser and the vendor.

Factors that should be considered when deciding how to structure the purchase of a business include:

• Do you intend to purchase all of the assets or only specific assets?

• What is the status of the corporation and what liabilities of the corporation can be identified?

• Will the corporate resolutions and contractual relationships allow for a change of control in the business?

• Are there employees of the business, and would you like to sustain those employees post-purchase?

• How will your decisions about employees affect pension and benefit plans?

• What complications attach to specific assets, and are those matters you are willing to assume?

• Does the company have any inventory, and do you want to acquire such inventory

• Are there any environmental liabilities associated with the land or buildings of the business?

• Would you like to purchase the equipment owned by the business as well?

• Do you want to be responsible for collecting receivables owed to the company but not yet received at the time of the purchase?

• Is there any intellectual property owned by the company that you would like to acquire (patents, copyrights, trademarks, trade names, licences, etc)?

• Is there goodwill associated with the business or the business's location(s) that you would like to benefit from?

• Tax circumstances of the vendor, purchaser and company.

The above questions have canvassed only a small portion of the issues that must be addressed when making the decision to purchase a business and subsequently how to structure such a transaction. Beyond those considerations, attention must also turn towards topics such as non-competition and confidentiality agreements relating to the vendors or other involved parties, any third-party contracts or necessary approvals, releases, the Bulk Sales Act (Ontario), the Competition Act (Canada), among a host of other issues.

The worst approach would be to hastily enter into an agreement to purchase a business without seeking professional advice in order to bring all the relevant issues to light so as to deal with them properly from the outset and ensure that you are both legally and financially protected. It is always better to approach a transaction with caution on the front end rather than to sign blindly and then spend the rest of your days in heated and costly litigation proceedings.

Jordan S. Halpern is a lawyer with BrazeauSeller LLP. He practises in the areas of corporate/commercial transactions as well as commercial and residential real estate. Jordan can be reached at 613-237-4000 ext 274, or at jhalpern@brazeauseller.com. For more information about Jordan, please visit www.brazeauseller.com.