Can I buy one division of a company instead of the whole company?

Several Canadian rules expressly contemplate the sale of part of a business. The harder questions concern the boundary. A division may share premises, contracts, systems and staff with the rest of the company, and the purchase agreement has to say which of those come across, which stay behind and how any shared piece is handled.

Tax rules already recognize part of a business

The CRA’s guidance speaks of selling “your business or even part of your business”, and says the seller and purchaser may be able to jointly elect for no GST/HST to be payable on the sale, apart from certain supplies it lists, if the conditions are met. Under section 167 of the Excise Tax Act, one condition is that the buyer acquires ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary for the buyer to be capable of carrying on the business or part as a business.

How the price is set

When part of a business is sold, the CRA says you generally set an amount for the entire business, and in some cases a sales agreement sets a price for each asset, a value for the inventory and an amount for goodwill. It also notes that, depending on the seller’s situation, selling assets can produce a recapture or terminal loss of capital cost allowance. How the price is split is a matter for each side’s accountant.

The division’s employees

British Columbia’s Employment Standards Branch reads its sale-of-business section to cover all or part of a business, and says the purchaser is responsible for all outstanding wages, including those due before the sale, if the seller does not terminate an employee before the disposition. Ontario’s guide gives an employee the purchaser hires credit for past employment for certain Employment Standards Act entitlements, but not if the purchaser hires the employee more than 13 weeks after the last day with the seller or the day of the sale, whichever is earlier. Check the rules of the province where the employees work.

What the agreement has to settle

• Which assets, contracts and licences move, and how anything shared with the parent is handled.
• Which employees transfer, and who answers for what is owed to them up to closing.
• Whether the buyer becomes a related employer, covered in this answer on buying part of a business.