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Selling a business correctly with the legal support of an experienced and skilled business sales lawyer.

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When you start thinking about selling your business, it is imperative that you retain knowledgeable professional advice from the outset. Beyond determining the selling price you are willing to accept, there are quite a few legal issues that need to be considered (which can be highly specific to the type of business being sold and therefore not covered in this excerpt).

The first issue that you will have to consider is whether you should sell (i) the assets of the business or (ii) the shares of the corporation (if incorporated) that runs the business. Each of these approaches has certain advantages and disadvantages for the seller:

The Asset Sale Approach

Advantages for the seller include:

  • the ability to retain certain assets which the seller does not wish to include as part of the sale

  • possibly using certain losses in the corporation to offset the income arising on the sale of the assets

  • a more favourable structure if selling one division of a corporation while retaining another

Disadvantages for the seller include:

  • any liabilities of the business not specifically assumed by the purchaser will remain the responsibility of the seller

  • having to obtain third party consents to transfer certain assets to the purchaser

  • possibly being left with unwanted assets which may be hard to dispose of when not selling the business as a complete package (such as obsolete inventory or equipment or aged accounts receivable)

  • possibly having to terminate employees that the purchaser does not want to retain, and being obligated to pay them in lieu of giving them notice of termination

  • at least some part of sale proceeds will be treated as ordinary income, rather than as a capital gain subject to lower tax inclusion

  • a more complicated legal transaction

The Share Sale Approach

Advantages for the seller include:

  • the ability to potentially use capital gains exemptions to reduce taxes payable on the purchase price received

  • potential favourable tax treatment (as a capital gain) even beyond the capital gains exemption

  • not retaining any liabilities of the business, including liabilities in connection with the possible termination of employees

  • a less complicated legal transaction

Disadvantages for the seller include:

  • the inability to retain any existing losses of the corporation

  • the inability to retain certain assets, unless transferred out of the corporation prior to closing

Typically, you will want to sell shares in order to take advantage of the capital gains exemption, while a buyer will prefer to buy assets to limit its possible liabilities. On some occasions a buyer will only wish to proceed with the transaction if it can purchase assets. In such instance, you may be able to insist upon a higher purchase price to make up for the lost tax savings on an asset sale. Similarly, if you insist upon a share sale, you may be able to offer a slightly lower sale price to make the deal more attractive to a potential buyer while still ending up with more after tax money than if you had completed an asset sale.

Getting Your Business Ready To Sell

If you are thinking of selling your business, one of the things you should do is to think about what the business will look like to a potential buyer. Is your corporate house in order? You may need to:

  • bring the minute book of the company up to date

  • ensure legal agreements with suppliers, customers, landlord, employees, agents, licensees, etc. are all in writing and duly executed

  • clean up the balance sheet (such as cleaning up receivables, selling off obsolete or excess inventory)

  • not take on extra staff, buy expensive furniture or art or other unnecessary or non-core items.

Undertaking the sale of a business correctly is an intense process, which can benefit greatly from the expertise of a knowledgeable business lawyer. To retain the legal services of Toronto business lawyer Christopher Neufeld, contact Neufeld Legal Professional Corporation at 416-887-9702 or


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Toronto business lawyer Christopher Neufeld is a corporate commercial lawyer with the law firm of Neufeld Legal P.C. and is admitted to practice law in Ontario and Alberta (Canada) and New York (U.S.A.).  Christopher's legal practice focuses primarily on business law, in particular corporate commercial transactions (mergers, acquisitions, divestitures, business purchases and sales, etc.) and business contract work. Copyright 2010.

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