GE Capital announced that it was on track to
sell between US$120 – 150 billion in assets by the end of
2016. Keurig Green Mountain recently announced that it entered into
a share transaction valued at approximately US13.9 billion. Both of
these are examples of the sale of a business. They, however, differ
in the way the sale of the business is structured. Whether the sale
of a business is structured as a share transaction or an asset
transaction will largely depend on whether you are the vendor or
the purchaser. Each comes with own unique set of advantages and
disadvantages, and every transaction structure will ultimately be a
compromise between the vendor and the purchaser.
In a share transaction, a purchaser acquires
all of the rights and benefits of the vendor, which would include
the vendor's contracts, permits and licenses. From a
purchaser's perspective, a share transaction may be beneficial
in that clients of the target company will not be disrupted, and
the purchaser may avoid the need to obtain third-party consents in
contracts or licenses (except for any "change of control"
provisions). The downside, of course, is that an acquisition of all
the rights and benefits usually comes with all of the liabilities
and problems of the vendor including the possible acquisition of
contracts which a purchaser may not want. This is one reason why,
in a share transaction, purchasers must undertake a thorough due
diligence review of the target company to ensure that they know
exactly what they are buying. This due diligence review will
typically include a legal review of the target company's
corporate records, intellectual property, contracts, and public
searches to determine any litigation or security interest on any
assets of the target company. From a vendor's perspective, a
share transaction may be preferable in that the liabilities of the
target company will not remain with the vendor. On the other hand,
vendors in share transactions may have to settle for a lower sale
price as a compromise for any liability that the purchaser takes
As noted above, in an asset transaction,
purchasers have great flexibility to freely choose which assets to
purchase from the vendor. This typically allows the buyer to avoid
any unknown or contingent liabilities. One disadvantage for
purchasers in an asset transaction is that third-party consents
will likely be required. The due diligence review that a purchaser
conducts in an asset transaction is similar to that in a share
transaction, except that there is a specific focus on the assets
being acquired. From a vendor's perspective, an asset
transaction may be the opportunity the vendor was looking for to
sell unwanted assets. However, vendors are at a disadvantage in
asset transactions in that they will continue to be liable for
obligations not acquired by the purchaser.
Of the two types of transactions, a share
transaction is generally a more simple transaction. There is not a
"one size fits all" transaction structure for selling a
business. The type of transaction structure will depend on the
circumstances involved. Benjamin Franklin said death and taxes are
the only thing in this world that are certain. Generally, the
latter of those two (hopefully not the former) is what will
typically drive the way in which the transaction is structured.
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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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