Area of Law: Business Law
Answer # 233
Buying and selling a businessRegion: Ontario Answer # 233
When a business is bought or sold, an Agreement of Purchase and Sale will need to be written and signed. A purchase agreement describes exactly what is being bought and sold, and for how much. Several things must be determined when you create a purchase agreement.
First, a value must be put on the business. In most cases, an accountant or business valuator will be required to do this. Some of the things he or she will consider when determining a value include the business profits over the last few years, the business assets, and the goodwill or public familiarity of the business.
Also, if you are buying a corporation, you will need to know whether you are buying the assets or the shares of the corporation. When you buy the assets of the corporation, you are buying individual pieces of the business. You can decide which pieces you do and do not want. Buying the assets also allows you to select which liabilities of the business you want to take on. Any liabilities you do not take on, such as an outstanding debt or lawsuit, remain the responsibility of the seller of the assets.
When you buy the shares of the corporation, you are buying the entire corporation as a whole. All the assets are included, as are all the corporation’s liabilities. There are complex tax consequences associated with both the purchase of assets and the purchase of shares.
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