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Buying and Selling Businesses

Business Lawyers  Toronto - Art by David Crighton

Having the right lawyers behind you is a crucial when you buy or sell a business (an acquisition) or initiate a merger. Mergers and acquisitions can be complex transactions involving many issues that require sophisticated legal solutions. The risks are always there, but with good lawyers you can minimize those risks to point where they are immaterial. At GMA, we work with you throughout this process from the initial stage (usually the Letter of Intent) all the way through to closing.

Letters of Intent
Most mergers and acquisitions start with the letter of intent. This is a non-binding, or partially binding, letter agreement between the parties setting out the basic details of the transaction. It usually includes:

  • the legal name of the parties;
  • the purchase price and payment details;
  • a description of what is being sold (like assets or shares); and
  • other some basic terms about the business.

A letter of intent is a very useful tool for solidifying the basic elements of a transaction and making sure everyone is on the same page. In fact, letters of intent are frequently used for a variety of other sophisticated legal transactions, like joint ventures and land developments. To successfully complete your letter of intent you need skilful lawyers on your side. A GMA lawyer can help you right from the letter of intent stage of your transaction. We can draft the letter of intent and assist you with the ensuing business negotiations.

Asset and Share Purchase Transactions
An acquisition is where one person purchases an entire business from another. After the letter of intent stage, acquisitions usually follow a common procedure. The letter will usually specify whether the buyer is purchasing shares in a corporation that owns the business, or the business assets themselves. Thereafter, the parties (and their lawyers) complete a detailed asset or share purchase agreement. Once the agreement is finalized, the buyer investigates the business - typically knows as the due diligence phase -, and thereafter, so long as the buyer is satisfied with the results of its due diligence investigations, the transaction can close.

Completing the asset or share purchase agreement is a crucial task. The agreement is designed to set out the transaction in much greater detail so that the parties can use it as a roadmap for due diligence and closing. Depending on whether you are purchasing assets or shares, the agreement can address issues like:

  • Jurisdiction and Governing Law (an issue that could arise if you are doing a cross-border or inter-provincial transaction);
  • Purchase Price Payment (such as whether a portion of the purchase price will be paid later and secured with collateral);
  • Tax issues;
  • Representations and Warranties about the business (for example, whether the business has liabilities, whether it is being sued or whether its employees are unionized); and
  • Indemnities, save-harmless obligations and purchase-price holdbacks in the event that something goes wrong.

After the agreement is finalized and completed, the due diligence phase begins. Any problems (like a wayward lien, or an undisclosed creditor) are brought to the seller’s attention so they can be rectified (usually with the assistance of the lawyers). Tax problems that arise are usually solved by tax accountants, tax lawyers and/or other tax professionals. When the due diligence phase ends and buyer is satisfied that the problems are resolved, the parties can close. It is not until the closing that the money (if any) changes hands and the transfer of the business from seller to buyer takes place. This transfer is usually affected through a large number of closing documents signed by one or more of the parties. The number of closing documents usually depends on the number of issues that have arisen during the due diligence stage and they can range from as little as 30 documents to as much as 70 (or even more for multi-million dollar deals).

Acquisitions are exciting but also risky and time-consuming, and the right lawyer can make the process significantly easier. At GMA, we have a thriving acquisitions practice so if you are buying a business, call a GMA lawyer.

Mergers
A merger is a corporate transaction where two or more corporations merge into one entity. Like an acquisition, it is a legal technique that can be used to combine businesses. You can find simple mergers between parents and subsidiary corporations, to extremely complex mergers between large corporations that require extensive agreements and involve numerous shareholders. If you are doing a merger, contact a GMA lawyer. We will work you and your other professional advisors at the planning stage throughout the deal to help you minimize your legal risk.




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