Whether you're buying your first business or selling one you've built over decades, the legal steps matter as much as the price. Here's what BC business owners need to know about asset sales, share sales, due diligence, and closing.
Buying or selling a business is one of the largest financial transactions most BC residents will ever make. The legal structure of the deal, the due diligence process, and the terms of the purchase agreement all have major consequences — for the price you pay or receive, the liabilities you take on, and the taxes you owe.
Asset Sale vs. Share Sale in BC
The first major decision in any BC business transaction is whether the deal will be structured as an asset sale or a share sale. Each has very different legal and tax implications.
Asset Sale
In an asset sale, the buyer purchases specific assets of the business — equipment, inventory, customer lists, contracts, goodwill — rather than the company itself. The seller retains the corporation and any liabilities not specifically assumed by the buyer.
Buyer's perspective: An asset sale is generally lower risk. The buyer does not inherit unknown liabilities (lawsuits, tax debts, environmental issues) that may be lurking in the corporation. The buyer also gets a stepped-up cost base for assets, which can reduce future capital gains.
Seller's perspective: Asset sales are often less tax-efficient. The proceeds are received by the corporation, and the seller must then pay corporate and personal tax to get the money out. Sellers also have to transfer each asset individually, which is more complex.
Share Sale
In a share sale, the buyer purchases the shares of the corporation, effectively buying the entire company — including all its liabilities, contracts, and history.
Seller's perspective: Share sales are typically more tax-efficient for the seller. Canadian-controlled private corporations may qualify for the Lifetime Capital Gains Exemption (currently $1.25 million for qualifying small business shares), which can shelter a significant portion of the gain from tax.
Buyer's perspective: The buyer assumes all of the company's past liabilities. Thorough due diligence — and strong representations and warranties in the purchase agreement — are essential to protect against hidden problems.
Due Diligence in a BC Business Purchase
Due diligence is the process of investigating a business before committing to buy it. In BC, this typically involves reviewing:
Financial statements (typically 3 years), tax returns, and accounts receivable/payable
All material contracts: leases, supplier agreements, customer contracts, employment agreements
Corporate records: minute books, share register, shareholder agreements, resolutions
Regulatory compliance: business licenses, permits, WorkSafeBC standing, CRA obligations
Litigation history and pending claims
Intellectual property: trademarks, patents, domain names, proprietary software
Employee matters: employment contracts, union agreements, outstanding HR issues
Real property: lease terms, condition of premises, environmental assessments if applicable
Due diligence findings often affect the purchase price or structure. Issues discovered during diligence can lead to price adjustments, holdbacks, or deal-specific indemnities in the purchase agreement.
The Purchase Agreement
The purchase and sale agreement is the central legal document in any BC business transaction. Key terms include the purchase price and payment structure (lump sum, earn-out, vendor financing), representations and warranties given by the seller, indemnification provisions if warranties are breached, conditions to closing (financing, regulatory approvals, landlord consent), restrictive covenants (non-compete and non-solicitation), and the transition period (seller staying on to train the buyer).
Employment Considerations in BC Business Sales
BC's Employment Standards Act has specific rules for business sales. If the buyer takes over the business as a going concern, employees' length of service carries over — the buyer assumes termination obligations based on each employee's total tenure, not just their time with the new owner. This can be a significant hidden liability.
Closing the Deal
Closing involves transferring assets or shares, paying the purchase price, executing closing documents, updating corporate registries, and notifying customers, suppliers, and employees. A BC lawyer coordinates the closing process and holds funds in trust until all conditions are satisfied.
When to Get Legal Help
You should involve a BC business lawyer from the very beginning — before you sign a letter of intent. The letter of intent sets the commercial terms of the deal and, if poorly drafted, can bind you to terms you don't intend. A lawyer can also advise on tax planning, employee issues, regulatory requirements, and how to structure the transaction to protect your interests.
In an asset sale, the buyer purchases specific business assets and the seller keeps the corporation. In a share sale, the buyer purchases the corporation's shares and inherits all its assets and liabilities. Asset sales are generally lower risk for buyers; share sales are often more tax-efficient for sellers due to the Lifetime Capital Gains Exemption.
Due diligence is the process of investigating a business before finalizing a purchase. It involves reviewing financial statements, tax returns, contracts, corporate records, employment agreements, regulatory compliance, and any litigation history. Due diligence findings can affect the purchase price, deal structure, or whether you proceed at all.
Yes. Under BC's Employment Standards Act, if the business is sold as a going concern, employees' length of service carries over to the new owner. This means the buyer inherits each employee's full termination entitlements — a factor that should be carefully reviewed during due diligence.
Yes — and you should involve a lawyer before signing a letter of intent, not just at closing. A BC business lawyer can advise on deal structure, tax implications, due diligence, employee matters, and draft or review the purchase agreement to protect your interests.