Can I ask the seller to dissolve an unrelated subsidiary before closing?

Yes, a buyer can ask. A subsidiary that has nothing to do with the business being bought can carry debts, claims or filings the buyer does not want to inherit in a share purchase. Whether the seller agrees is a negotiation. Whether it can be done before closing is a legal question, because dissolving a corporation has its own steps. This page uses the federal Canada Business Corporations Act (CBCA) as the example. A subsidiary incorporated under a provincial statute follows that province’s rules, so confirm where it was incorporated.

How a buyer can raise it

BDC says that in most acquisitions there is a period between signing the purchase agreement and closing, and that the closing conditions are undertakings the vendor agrees to complete during that period. A dissolution could be written in as one. BDC also says a lawyer can draft the purchase agreement and advises not waiting until the last minute to bring one in, so raise it early. Ask whether the seller would rather carve the subsidiary out of the deal or simply keep it.

What a federal dissolution requires

Corporations Canada states that a CBCA corporation can be dissolved only when its property has been distributed and its liabilities discharged. Shareholders authorize it by special resolution, and where there is more than one class or group of shareholders, each must pass one even if not otherwise entitled to vote. A corporation that is bankrupt, has a trustee under a proposal or has an interim receiver under the Bankruptcy and Insolvency Act cannot voluntarily dissolve.

Why timing is the real issue

If the subsidiary will cease carrying on business while it liquidates, Corporations Canada says it can apply for a certificate of intent to dissolve. The corporation must then cease its activities except as needed for liquidation, notify creditors and give notice in each province where it carries on activities. Once liquidation is complete, it can apply for the certificate of dissolution. If that cannot finish by closing, ask for an alternative, such as a covenant to complete it after closing, and have your lawyer check whether it protects you.

Before you ask, use legal due diligence to see the subsidiary’s corporate documents and legal status. BDC lists certificates of incorporation, by-laws and shareholder agreements among the documents to review.