Does a hybrid structure protect a buyer from unknown liabilities?

“Hybrid” is not a statutory term. On this page it means a deal that mixes the two basic routes, for example a buyer who takes some assets and also the shares of a company, or a seller who moves chosen assets into a new company that the buyer then buys. The aim is to leave unwanted liabilities behind. It can do that for contracts and debts, but some statutory obligations are tied to the business, not to the legal form of the sale.

Employment continuity

Ontario’s Employment Standards Act, 2000 says that if an employer sells a business or part of one and the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for the purposes of that Act, and “sells” includes leases, transfers or disposes of in any other manner (s.9). Section 9(2) excludes a hire made more than 13 weeks after the earlier of the employee’s last day with the seller and the day of the sale. British Columbia deems employment continuous when all or part of a business is disposed of (s.97), and Alberta does so when a business is sold, leased, transferred or merged (s.5). Other provinces have their own rules.

Workers’ compensation

The WSIB says that if you are purchasing a business’s assets you should get a purchase certificate, and that it may hold the purchaser liable for all amounts owed by the vendor up to the date of sale if you do not get a valid one. For shares, it says a new legal entity is not created, so no certificate is required, though the share purchase agreement must be submitted. The Alberta WCB says you have a responsibility to get a clearance when buying a business, its stock or equipment.

What to ask before you pick a structure

Ask your lawyer to list each known category of liability and say which half of the deal it lands in, and what the agreement does if one half does not close. See buying shares and assets together and successor employer liability. A search or certificate shows only what is on record, so ask how the price, indemnity and insurance terms deal with what it cannot show.