Everything You Need to Know About Buying your Business or Selling your Business is Right Here:
There is a lot to know about successfully buying or selling a business’s assets or shares. Every deal is different as are the parties involved. Each industry requires different considerations. At the heart of every good deal, however, are certain fundamentals that every agreement should have. These involve the right processes, closing documents, and considerations to mitigate risk.
Have a look at our articles below where we discuss everything you need to know about buying or selling a business.
Every agreement for purchase or sale of a business’s assets or shares includes a two-step process involving, firstly, a negotiation that culminates in the closing of a deal. Following the execution of the agreement, the process continues with the fulfillment of conditions outlined in the agreement and a variety of closing documents, which must be drafted and signed.
Asset Sale vs. Share Sale
The first and foremost consideration when buying or selling a business is whether you will be purchasing/selling assets or shares. There are only these two ways in which one can acquire a business and each has its own benefits and disadvantages. In this article we discuss these concepts to enable you to determine which method is right for you.
Lifetime Capital Gains Exemption
One of the principle reasons why it is suggested to sell shares of a business instead of its assets is because of the advantages of utilizing the Lifetime Capital Gains Exemption. This tax exemption, which shelters $883,000 from taxation on the sale of your business, is only available if you sell shares. Does your business qualify? We discuss these concepts and more in these articles:
Capital Gains Deduction Eligibility for Proprietors
As discussed, selling shares of a corporation allows corporate owners to claim a valuable tax saving tool called the capital gains deduction. While this is available for corporate business owners, sole proprietors cannot take advantage of this as they do not have shares to sell, unless they utilize a provision under the Income Tax Act. This provision allows sole proprietors to roll their business into a newly incorporated company and to sell their assets in exchange for shares. These shares can be sold, in turn, to realize a capital gain and the utilization of the capital gains deduction.
The Capital Gains Deduction is a powerful tool for business people available under Canadian income tax law. Where it is available, it allows business-people to avoid paying income tax on a certain amount of capital gains ($883,384 in 2020) throughout their lifetime.
Closing documents include the key documents central to closing the business transaction — Examples includes: ; non-competition and non-solicitation agreements; minute book closing documents, certificate of incumbency, bring-down certificate of representations and warranties, and a post-closing consultation agreement.
Protecting Your Interests
If you are thinking of purchasing or selling a business, you should carefully consider the advantages and disadvantages of an asset sale versus a share sale. You should also keep in mind two contentious issues that you can expect to be negotiated: 1) employees’ liabilities and 2) measures to preserve the goodwill of the business after closing (e.g. non-competition and non-solicitation agreement)
Thank you for visiting our page on everything you need to know about buying or selling a business. We hope that you found the articles above helpful. There is a lot to know to ensure that your purchase or sales agreement leads to a firm closing that you can feel secure about. Contact a lawyer at Kalfa Law today to provide you with the assistance and guidance you need to help with the process of closing the transaction.
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The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.