The Dos and Don’ts of Selling a Business

Disclaimer: This article is intended for the purposes of providing information about selling a business in Ontario only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

Being an entrepreneur is one of the most challenging experiences, but often the most satisfying. It comes with a lot of risks, but also a lot of rewards. One of the biggest decisions you will make as an entrepreneur is when to sell your business.

Do not take the decision to sell your business lightly, as it can be a very emotional process. You have likely put blood, sweat and tears into building your business. Of course, you want to make sure that it goes to someone who will appreciate and care for it as much as you have.

When selling a business in Ontario, there are a few key things to keep in mind. Here are the Dos and Don’ts of selling a business.

DO: Talk to a lawyer when selling a company

The very first thing you should do is talk to an experienced business lawyer (such as the team from Beeksma Law). It doesn’t matter if you are selling the business to your relative, best friend or child. You absolutely need someone taking a look at the legal aspects of your sale.

Time again, our team sees business owners selling their businesses without legal advice. After the sale, there are issues with liability remaining with the seller. The seller did not expect this because there was not a well-written agreement in place.

Selling a business has many moving pieces. Relying on solid legal advice means that we consider all of these potential issues and nothing falls between the cracks.

Don’t: Forget to consider the tax implications of selling a business

The other professional that you will want to speak to is an accountant. There are tax implications to selling your business that you will want to consider so that you do not end up with a hefty tax bill.

DO: Consider whether its a share sale vs. asset sale

In determining the tax implications surrounding the sale, you’ll need to know if it is a share sale or an asset sale. Generally speaking, a share sale will have more tax implications for the seller and an asset sale will have a greater impact on the buyer.

Make sure it is clear what you are selling and what is and what is not included when you are negotiating the sale. For example, some licences are not assignable, so be sure that you are not including something in the sale that you cannot transfer.

DON’T: Be unclear about the plan going forward

One of the most important questions to answer if you are selling your business is, “What’s the end date for your exposure to liability?” Liabilities can be a broad term and can include any accounts payable or liability if someone is harmed by the business’ machinery, for example.

As well, if the business is not being sold outright and you will be making payments over time, how will you structure those payments? Will there be a General Security Agreement? Will there be a PPSA registration against the buyer? How will you ensure that you will receive the full purchase price?

These are all questions that require answers while negotiating the purchase, and a lawyer can help you negotiate these terms with your best interests in mind.

DO: Obtain any necessary third-party consents

While it may be your business, there are instances where you require third-party consent for portions of the sale.

A few examples come to mind. The first is in the instance of a lease. Your lease may have a provision to the effect that you cannot assign the lease to someone else without the landlord’s permission. In other instances, it could be a situation where you structured your corporation in such a way that you require your shareholders’ consent, or you may need to restructure your business because of the sale.

Get advice that you can trust

When selling your business, don’t just seek legal advice. Get legal advice that you can trust. The team at Beeksma Law has a wealth of experience and will work with you to protect your best interests every step of the way.

Our founder, Shayna Beeksma, is a strategic advocate for business owners across Ontario. Not only is she a mentor for other women-led businesses, but she is also an active member of her business community.

We understand that selling a business in Ontario is a big decision, and we’re here to help you through it. Contact us today to learn more about how we can help you sell your business. (As well, stay tuned for our future article on tips for purchasing a business). 

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