How should two unrelated investors structure a business purchase?

Two investors who do not know each other well should settle three things before they sign a purchase agreement: the legal vehicle that will own the business, who controls decisions, and how either one leaves. A lawyer and an accountant should shape the final structure, and the points below tell you what to bring to them.

Choosing the vehicle

Nova Scotia’s registry describes a partnership as a business of two or more partners that is not incorporated, and says a partner can be a real person or a corporation. It describes a company as a legal entity separate from its owners. It lists personal liability, tax implications and who will own the business among the points to consider. Each province runs its own registry, and the registry cannot give legal advice.

Fixing control before closing

Corporations Canada explains that, under the CBCA, directors are elected by ordinary resolution, which needs a simple majority of votes cast. A shareholder with a majority of the votes can therefore decide alone who sits on the board, and an even split gives neither investor that power. The board controls management unless a unanimous shareholder agreement moves those powers to the shareholders, who then take on the directors’ liabilities. A shareholder agreement must be in writing and signed, and it can give each shareholder a board seat or require unanimous approval for a sale of the business.

Writing the exit and the deadlock rules

The same Corporations Canada guidance says an agreement can set transfer rules for events such as death, resignation, dismissal, personal bankruptcy or divorce, and can include non-competition, confidentiality and dispute resolution clauses. Separate Corporations Canada guidance on changing a corporation’s structure says a court may order its dissolution and liquidation on a shareholder’s application in certain circumstances, such as when its actions are oppressive or unfairly prejudicial to the interests of any shareholder, creditor, officer or director. Settle your own exit terms in writing first, and see what financing do I need to buy a business for the funding side of the purchase.