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. The 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.
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Difference between an asset purchase and share purchase
An asset purchase involves the sale of individual assets. The share purchase involves buying of 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 companies 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 to 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 regarding:
- 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
Different between an asset purchase and 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; 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.
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 on limitations and qualifications of representations and warranties.
Other legal concerns:
- Non-competition and non-solicitation covenants
- Indemnities, survival periods
- Conditions of closing
Consult with a ClearWay lawyer to correctly draft an Asset Purchase Agreement
Talk to a ClearWay lawyer in 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.
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PRO TIP :
“An Asset Purchase Agreement transforms a business deal into a legally binding contract that protects the rights of the parties involved.”
FAQs on drafting an Asset Purchase Agreement in Ontario
Do I draft an Asset Purchase Agreement when buying shares of stock from a company?
No, the lawyer will create another agreement for you. It’s important to use the correct agreement. That is why business lawyers are helpful.
Can I draft an Asset Purchase Agreement on my own?
If you make a mistake, the financial and legal issues can be extremely serious. Pay some money to a business lawyer to have things done correctly.
Can I still buy a company’s assets without drafting an Asset Purchase Agreement?
That is 100% not the correct way to do it. If you spend money and don’t have the asset purchase agreement in place, you might not legally own the assets. You could be in a world of trouble.