Life is all about risk. There is risk when driving to work, when
crossing the street and when you arrive late for your anniversary
dinner. There is also risk when you decide to buy or sell a
business. Legal counsel can help identify and mitigate the risks
associated with buying or selling your business; however,
you're on your own if you're late for your anniversary
When buying a business there are a lot of factors that a
purchaser will consider. These include purchase price, timing,
confidentiality, deal structure (i.e. share or asset purchase) and
generally, how to optimize the profitability of the business
post-acquisition. With so many factors to consider, it is not
surprising that purchasers often overlook certain legal risks
associated with the acquisition.
For example, if the purchaser is buying the shares of a company
that owns the business, the purchaser generally acquires all of the
liabilities of the company as well. Such liabilities may include
unpaid tax liabilities, pending litigation including major product
warranty claims, environmental contamination, intellectual property
infringement claims, employment standards and workers compensation
concerns and other significant legal risks.
To identify and reduce such risks, legal counsel can provide a
wide range of due diligence searches. These searches provide a
purchaser with detailed information about various liabilities that
the business may face. Once the risks are identified, the purchaser
can negotiate a variation to the purchase price or require the
vendor to provide representations, warranties and indemnities to
compensate for the risks.
Many businesses rely heavily on personal relationships built
over time. In these instances, the purchaser may want to retain the
services of the vendor (or the vendor's principal) to assist
with business transition, customer relations and retention of key
staff. Legal counsel can help the purchaser design a deal structure
that provides the vendor with appropriate incentives and
compensation while protecting the business and the purchaser going
Selling a business also has its own share of risks. In most
acquisitions, the purchaser typically requires the vendor to
provide representations and warranties regarding the business, and
provide assurances regarding the financial health of the business.
However, there are several instances where it is appropriate for
the vendor to limit or qualify the representations and warranties
in order to limit its financial exposure after acquisition. For
example, the vendor may wish to qualify that certain
representations and warranties are made to its actual knowledge.
Further, the vendor may attempt to limit the duration of its
exposure to the purchaser after acquisition, and exclude liability
for certain types of claims and damages. Legal counsel can help the
vendor negotiate and draft appropriate limits on the vendor's
contractual and legal obligations to the purchaser during and
In many deals the vendor is required to finance a portion of the
purchase price, thus creating additional risk. To mitigate the risk
of non-payment, there are several options that a vendor may
consider including, registration of a security interest against the
assets of the business, guarantees from the principal of the
purchaser or its parent entity, placement of shares of the sold
company into escrow as security and/or contractual rights that
allow the vendor to monitor and/or participate in the management of
the business to maximize the likelihood of repayment. Legal counsel
can help the vendor with negotiation and documentation of one or
more of these options.
Experienced legal counsel can assist purchasers and vendors with
legal risks arising from the sale of a business. As for being late
for your anniversary dinner, flowers are always a good place to
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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