Selling a Business in Canada

Intricacies of a Business Purchase and Sale

Anna Dunaeva DLegal Anna Dunaeva June 6, 2023
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Selling a business in Canada can seem like a daunting task. However, the financial compensation and opportunity to preserve your legacy can make it well worth the effort. To ensure the best possible sale outcome, preparation is key.

You should begin the process of preparing your business for sale well in advance. This will help to ensure that you are well-positioned when you decide to put or sell it on the market.

Preparation for Selling a Business

Before you can begin the process of selling a business, it’s important to assess it. Take the time to assess your business value from all different angles to give yourself a greater understanding of where it stands now and how it will continue to develop. This will help you get clear on what you have to offer potential buyers.

Setting the best price for your business is a big decision. To come up with an asking price, you’ll want to examine current market trends and consider the financials and operations of your entire business, including any liabilities and assets that may be included in the sale. If you are still stuck, there are business valuation services that can help you set a price.

Potential buyers will also want to see financial statements and other essential documentation in order to make an informed decision. This includes records, such as your tax returns, business number, balance sheets, profit & loss statements, accounts receivable and payable, contracts, permits and licenses, employee information, and more. Gather and keep them close to show to a serious prospective buyer.

Selling Your Business

Once you find the right buyer, whether it’s a family member, trusted employee, or outside party, it’s time to prepare a transfer agreement. This document should outline details such as who will be responsible for handling financial payments for debts or liabilities associated with the business, who will assume responsibility for any contracts currently in place, and what restrictions (if any) will be placed on future competition once the new buyer takes over.

You and your buyer will have an opportunity to negotiate terms here discussing things like payment options (such as an all-cash offer or an instalment plan) as well as any contingencies that may be included in the agreement (such as restrictions on future competition).

After preparing the transfer agreement, it is essential to update your business records accordingly. This includes updating bank accounts, filing new ownership forms with any relevant government agencies, and notifying suppliers or vendors of changes in ownership.

Transferring Business Ownership

Closing the deal involves signing all of the paperwork required to transfer ownership of your business, as well as transferring any licences or permits necessary for operation. This includes signing contracts outlining responsibilities for both parties involved in the partnership agreement as well as filing new corporate registration forms with relevant government agencies such as Industry Canada (formerly known as Corporations Canada).

When it comes to selling your business, remember that all business sales will look slightly different and have different tax implications and tangible and intangible assets involved. Ensure you have a business lawyer and financial advisor go over the paperwork so you don’t run into any trouble with the tax services office.

You’ll want to ensure the transfer of the acquired business is legally binding and that your best interests are protected so you and your clients don’t experience any surprises down the line. For example, being caught on the line for debts from a business you have already sold.

Types of Business Ownership

The most common types of business ownership are sole proprietorship, partnership, limited liability company (LLC), or corporation.

  • In a sole proprietorship, the individual is both the business’s owner and operator, and has full responsibility for all losses and profits.
  • A partnership involves two or more people who share ownership of the business while both taking on roles in managing it, as well as holding responsibility for any legal actions.
  • An LLC (or corporation) combines features of a partnership and sole proprietorship into one entity by protecting owners from debts and liabilities yet still allowing them to choose how to organize their businesses. Corporations are owned by shareholders and must be incorporated with required paperwork.

The type of ownership you choose is important when you are transferring ownership of the business. The business structure could impact operations if it is different from the type of ownership currently held by the entrepreneur or existing business owner. By correctly selecting the type of ownership, entrepreneurs will have more control, stability, and growth potential for years to come.

How to Make Your Business Attractive to Prospective Buyers

Making a business attractive to prospective buyers is an essential step for any owner trying to sell. It starts with positioning your business as the ideal solution for the buyer, showcasing the advantages of ownership over other property, and demonstrating why now is a great time to buy.

Along with this, it’s wise to ensure that all of your finances are up-to-date and in order, that operations run smoothly, and that all necessary documents are in place. Taking proactive actions such as refining your processes, marketing strategies, and investments in technology can also help you maximize the value of the business before you put it on the market.

By laying out a clear path to success that a potential buyer can understand and follow, you will be better positioned to achieve top dollar when negotiating the sale of your business.

Selling a business in Canada doesn’t have to be stressful if you prepare yourself for the process ahead of time. By taking some extra time up front to assess your business and partnering with a professional advisor or a business lawyer to ensure your best interests are protected, you can make sure that everything goes smoothly when it comes time to sell your business and sign on the dotted line.

At DLegal, our lawyers can help you navigate the complex world of business law. When it comes time to buy or sell your business, reach out to our team. We will help walk you through the process.

Questions?

The DLegal team is here to support. We will do our best to assist or connect you with those who can help.

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