Can I buy only the profitable part of a failing business?

A struggling company can sell one division and keep the rest, and buyers do look for exactly that: a line of business with real customers and margin inside a company with debts it cannot carry. The difficulty is that the profitable part rarely stands alone. It shares a lease, staff, equipment, systems and customers with the rest, and the seller’s financial trouble raises the stakes if anyone else has a claim on what you are buying.

Define the part precisely

List what the division actually uses: equipment, inventory, contracts, premises, licences, staff, brand and data. Anything it shares with the part left behind needs a decision, whether that is splitting it, copying it or agreeing a transition period. A buyer who cannot list the pieces cannot price them or find out who has a claim on them. Buying a profitable business vs a turnaround shows how the two approaches differ.

Check who has a claim on it

British Columbia’s registry records security interests and liens against personal property belonging to businesses and individuals, and Ontario says a buyer’s search can show a lender may have rights in the goods, after which the buyer can ask the lender whether the loan is still outstanding. Because the seller is struggling, also ask a lawyer and a licensed insolvency trustee how the sale could be treated if the seller later fails.

Tax and staff follow the part

The CRA’s GST44 form allows an election that GST/HST not apply to the sale of a business or part of a business, so your accountant should ask whether the division qualifies. On employees, British Columbia says its sale-of-business rule applies to all or part of a business, treats employment as continuous and has the purchaser honour past service. Other provinces have their own rules, so check where the staff work.