How does a partial share purchase of a business work?

In a partial share purchase, the buyer acquires part of a corporation’s shares, rather than its assets or all of its shares. The buyer becomes one of several owners. The business, its contracts and its liabilities stay inside the corporation, so most of the work is to understand what the shares carry and what the other owners can do.

The rights come from the share class

Under s.24(3) of the Canada Business Corporations Act, where a corporation has only one class of shares, the holders’ rights are equal in all respects and include the rights to vote, to receive dividends declared and to receive the remaining property on dissolution. Under s.24(4), the articles may provide for more than one class, and the rights, privileges, restrictions and conditions of each class must be set out there. Ask which class you are buying. Provincial corporations statutes have their own rules.

The company keeps its liabilities

The Saskatchewan WCB describes a share sale as one where the assets and liabilities of a company remain with that corporation. After one, the new owners are responsible for the existing WCB account and its history. Under CBCA s.45(1), shareholders are not, as shareholders, liable for any liability, act or default of the corporation, except under the subsections it lists. Those liabilities still sit inside the company you are buying into, so ask about them in due diligence.

What protects a minority owner

Under CBCA s.190(1), subject to ss.191 and 241, a shareholder may dissent from the resolutions it lists, such as a sale, lease or exchange of all or substantially all of the corporation’s property, and a shareholder who follows the procedure is entitled to be paid fair value, subject to the solvency limit in s.190(26). Under s.241(2), a court that is satisfied the conduct is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, any security holder, creditor, director or officer may make an order to rectify the matter. These are remedies after a problem, not a substitute for agreed terms, so ask whether a shareholder agreement should cover decisions, exit rights and transfers.

A partial purchase can still need federal notice. Subject to ss.111 and 113, Competition Act s.110(3) applies to proposed acquisitions of voting shares of a corporation that carries on, or controls an entity that carries on, an operating business, where size and voting-share tests are met. Compare what happens between the LOI and closing for the steps that follow an agreed price.