The time has come to take your leave at the head of the company?
On the contrary, are you a businessman always ready to seize his next commercial opportunity? In either case, it is imperative that you know the main steps involved in buying and selling a business in Quebec.
You still need to know which type of transaction you are heading for! It only takes one wrong step for it to die in the bud and after years at the helm of a company, there is no point in describing to you the frustration this would cause.
Don’t let go of your opportunities, Openfair is here to guide you through the process of buying and selling a business step by step.
At the dawn of a business sale, the first question that should come to the mind of both buyer and seller is: how will the transfer happen? This may seem trivial, but it is an issue of the utmost importance. The main options are to sell the assets, the shares or to proceed with the merger of two entities. Which of these options is right for your transaction?
The purchase of a business through a transfer of assets consists in selling all or part of the assets that constitute its assets. For example, a property management company could decide to sell some of its buildings to the acquiring company. In doing so, the buyer acquires ownership of the goods, but does not retain the legal personality of the company, which is one of the main advantages of selling assets.
Buying/Selling Guide !
1. Confidentiality Agreement :
The transfer of a business has nothing to do with a real estate transaction such as the sale of a house. Even if negotiations take place and bids are issued in both scenarios, the information is much more sensitive in the case of a business sale.
Before negotiations begin, it is imperative that the buyer sign a confidentiality clause for the benefit of the seller. In some situations, this clause should even be bilateral and force the potential seller to keep the negotiations secret, especially when the buyer is a player in the same industry.
2. Determine the method of valuation and negotiation
Before sitting down at the negotiating table, the parties to the transaction should agree on the best way to assess the business. In doing so, both buyer and seller will compare apples with apples and oranges with oranges.
To do so, the parties should use the services of an independent business appraiser who will use one of the methods agreed by the parties, namely.
- Juste valeur marchande
- Valeur de liquidation forcée ou liquidée
- Actualisation des flux monétaires
- Méthodes fondées sur le marché
However, this valuation is only one of several and there is no guarantee that the valuation price is the final selling price, for better or for worse.
3. Letter of Intent and Conditional Offer to Purchase :
Once the parties have agreed on the essential terms of the business transfer, the time has come to issue an offer to purchase or a letter of intent. What is the difference between the two?
The distinction is sometimes intelligible, but in theory, the letter of intent is a document that develops the “blueprint” of the transaction but does not represent a formal commitment. In practice, it often precedes the formal offer to purchase. On the other hand, once this last accepted, it constitutes a binding preliminary contract between the seller and the buyer.
An offer to purchase should always contain all the essential elements of a proposed contract, that is, the price, the good purchased, the method of payment and the date of payment. Here’s what it means when it comes to selling a business.
The offer should always contain a satisfactory due diligence clause. This is equivalent to the inspection clause of an offer to purchase a house. In the event that your due diligence reveals a defect in the business to be purchased, the offer to purchase and the price indicated will be canceled, allowing you to renegotiate down or simply withdraw from the transaction.
4. Due Diligence and Financial Review:
Due diligence is one of the most important steps in a business sale. This is when you will find out if the company you offered to buy is indeed free of any potential defects.
The primary objective of due diligence is to uncover all potential legal, financial, tax and accounting issues, which involves analyzing the company’s most important documents :
• Company Minutes;
• Shareholder Agreement;
• Consult the Registry of Rights Advertising (RDPRM and Land Registry);
• Analyze the company’s most important contracts;
• Monitor employment contracts;
5. Conclusion of the business purchase/sale contract:
You are finally there, your offer to purchase is closed, due diligence is done and financing is obtained. All that remains is to formalize everything by signing the official sales contract. Your lawyer will be in charge of drafting it, allowing you to quickly take possession of the purchased company.
It is also possible to mandate a notary at the time of signing in order to record the transaction and transform the contract of sale into an authentic deed.
Openfair is the ideal place to find your future business, by reducing the time of the buying/selling process, it will help you process your file faster and will give you the control to trade yourself with all stakeholders, with which you could discuss in order to conclude your purchase/sale.
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