Are you looking for help with completing an asset purchase in Ontario? Connect with a lawyer.

Purchasing assets can be a strategic move for businesses looking to expand their operations or acquire valuable resources in Ontario.

However, it requires careful consideration and attention to detail to ensure the process is conducted smoothly. This guide provides some tips and considerations for asset purchases in Ontario.

Identify the Assets You Need

It’s important to have a clear understanding of the assets you need to acquire before diving into the asset purchase process. By identifying the specific assets required, businesses can focus their efforts and resources on finding the right opportunities.

According to the Ontario Ministry of Economic Development, Job Creation, and Trade, there were over 4,800 merger and acquisition deals completed in Ontario in 2020, emphasizing the importance of pursuing assets strategically.

Conduct Due Diligence

Conducting due diligence is an essential step in the asset purchase process. Due diligence involves gathering and analyzing information about the assets businesses are considering acquiring and any associated risks or liabilities.

According to a report by Deloitte, 80% of buyers and sellers surveyed said that conducting due diligence was critical to the success of an M&A transaction.

Consider Financing Options

Financing is another critical consideration in the asset purchase process. There are a variety of options available, including cash purchases, asset-based lending, and traditional bank loans. Choosing the right financing option can help businesses manage cash flow and minimize risk.

According to the Canadian Federation of Independent Business, 47% of small business owners in Canada have used business financing in the past year, emphasizing the importance of considering financing options in the asset purchase process.

Seek Legal and Financial Advice

Navigating the asset purchase process can be complex, particularly if businesses are dealing with multiple assets or high-value transactions. Seeking legal and financial advice can help ensure that businesses are making informed decisions and protecting their interests.

According to a survey by Thomson Reuters, 72% of legal professionals have seen an increase in M&A activity in recent years, highlighting the importance of working with experienced professionals who understand the nuances of the asset purchase process.

Tax Implications

Tax implications are an important consideration in asset purchase transactions. Depending on the assets being acquired and the structure of the deal, there may be tax consequences that need to be carefully considered.

Working with a tax professional can help ensure that businesses are aware of any potential tax liabilities and can structure the deal to minimize their tax burden.

Employee Impact

If businesses are acquiring a company with employees, it’s important to consider the impact on those employees. This includes both the impact on the employees of the company being acquired, as well as any impact on the businesses’ existing employees.

Proper communication and planning can help minimize disruptions and ensure a smooth transition.

According to data from Statistics Canada, there were over 470,000 employer businesses in Ontario in 2020, highlighting the potential impact of employee considerations in asset purchase transactions.

Intellectual Property Rights

Intellectual property rights can be a valuable asset in many businesses. If businesses are acquiring a company or assets that include intellectual property, it’s important to ensure that they are acquiring the appropriate rights and protections.

This can help ensure that businesses can fully realize the value of these assets and avoid any potential legal issues down the line.

Asset purchases in Ontario can be a complex process that requires careful consideration and attention to detail.

Identifying the right assets, conducting due diligence, considering financing options, seeking legal and financial advice, and carefully considering tax implications, employee impact, and intellectual property rights are all crucial steps to ensure the success of the transaction.

By taking these tips and considerations into account, businesses can navigate the asset purchase process with confidence and achieve their strategic goals.

Asset Purchases in Ontario

There is a difference between doing an asset purchase and a share purchase. You have the option when you are purchasing a business. Many people think you purchase a company and all the liability. Many companies do not do it this way. Instead, people prefer to do asset sales.

The main reason people do this is to avoid any company debts or liabilities. An asset purchase is when the buyer purchases the assets of a company selling its business.

It’s not only a business term but also a legal term. Legality is important because asset ownership is transferred to a new owner, along with which liabilities are to be assumed.

An asset purchase is effected through an asset purchase agreement. In Ontario, it’s best to consult a lawyer when drafting an asset purchase agreement. This will make sure all Ontario laws are followed.

Difference between an asset purchase and share purchases

An asset purchase involves the sale of individual assets. The share purchase involves buying 100% of a company’s shares. It’s important to do things correctly. Have you thought about capital gains, transfer tax, due diligence, tax implications, or income tax? A lawyer can provide legal advice about these things.

Why it’s important to properly draft an Asset Purchase Agreement

It’s important to include lots of details in the agreement. The more details, the better to define every condition, scope, and coverage. You do not want to get stuck having to pay the company’s liabilities. If they have a judgment against them for $300,000 and you assume their debts, you will have to pay the $300K.

This is why you need a lawyer to do due diligence on the deal. You might save $1500 by not hiring a lawyer, and lose hundreds of thousands of dollars. That is a bad trade.

Benefits of an Asset Purchase Agreement:

Prevent misunderstandings and avoid disputes
Costing/Pricing
Assets purchased (scope, quantity)
Conditions, if any, for each asset purchased
Create a record/document enforceable by law
Avoid any costly and inconvenient litigation that may arise

Difference between an asset purchase and a share purchase

An asset purchase involves the sale of individual assets. The share purchase involves buying 100% of a company’s shares, as well as title to assets, and title to liabilities.

How a lawyer helps in drafting an Asset Purchase Agreement in Ontario

There are many different reasons that a company owner might want to sell individual assets. Perhaps these assets are no longer of use in day-to-day operations or the sale of them could help to facilitate new investments in more updated assets.

While the initial decision to sell assets might originate with the company owner, an experienced lawyer who is knowledgeable about asset purchase issues should be used for the remainder of the sale process to ensure that all the right details have been addressed.

There are far too many pitfalls that could occur without the right legal guidance and having an asset purchase attorney on board from the very beginning.

Retain ownership of the company

Don’t hesitate to get advice from someone who knows the landscape and can assist you in getting maximum value from an asset purchase transaction while also protecting your interests.

Given the flexibility of getting to retain ownership of the company while still removing assets from the company’s ownership and using the sale proceeds for other investments. An asset purchase can be a wise choice for your business if you want to retain control.

Buyers also enjoy benefits in asset sales because when compared with stock sales, a buyer avoids taking on much liability in the transaction.

Non-competition and non-solicitation covenants

Lawyer’s knowledge of business laws and contract laws in Ontario:

Making sure a purchase transaction is completed without breaking any laws
Important in preventing fraud

Our lawyers have proficiency when it comes to using a checklist for drafting a complete and comprehensive asset purchase agreement.
They can provide guidance concerning assumed liabilities and excluded liabilities. The lawyers have knowledge of the limitations and qualifications of representations and warranties.

Other legal concerns:

Non-competition and non-solicitation covenants
Indemnities, survival periods
Conditions of Closing

Completing an Asset Purchase Agreement in Ontario

Your lawyer will review all documents and records provided. They will then provide legal advice about what kind of purchase agreement you should use.

The ClearWay lawyer will also ask for more information about the transaction. Further, they will provide answers to clients if they have questions.

Book a consultation with one of our business lawyers through our toll-free number. If you need help with planning for capital gains, due diligence, or transfer tax, contact us.

PRO TIP :

“An Asset Purchase Agreement transforms a business deal into a legally binding contract that protects the rights of the parties involved.”

Author: Alistair Vigier is the CEO of ClearWay Law

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Your Guide to Asset Purchase in Ontario