Should I bring in a partner or investor instead of selling my business?

Selling and bringing in a partner are different transactions, and the choice is yours. A full sale ends your ownership. A partner or investor leaves you as an owner of part of the business, alongside someone who now has rights in it. This page sets out what each route changes, so you can ask better questions of your lawyer and accountant before deciding.

Start with why you are considering a sale

BDC says your reasons for selling will likely influence your goals for the transaction. Its examples include maximizing the sale price to fund retirement, ending your involvement completely, and making sure the business carries on without you. Among the reasons for selling, it also lists a dispute with business partners, or simply wanting some time off. A partner or investor can meet some of those goals and not others. If the aim is to leave altogether, ask how and when an investor’s stake would later be bought out.

What a new shareholder changes

Corporations Canada explains that an investor can buy shares newly issued from the corporation’s treasury, or buy shares from an existing shareholder, according to the terms set out in the articles, and have the corporation register the transfer. Either way, you gain a co-owner. Corporations Canada suggests considering a shareholder agreement if you have more than one shareholder or want to bring in other investors as the business grows. Its example is an agreement requiring a unanimous decision to sell the business, where the Canada Business Corporations Act requires only a special resolution. Compare that with taking shares instead of cash if a buyer offers them.

Middle routes between a partner and a full sale

BDC describes owners who stay involved after a sale through vendor financing, an earn-out, a phased transfer of ownership, or a role as an executive, board member or advisor. A phased transfer sits between the two choices. Ask how each arrangement would tie your payments or your role to the buyer’s results, and what happens if the business does not perform as expected.

Questions to settle before choosing

• Who decides on a sale, a new share issue or a major expense, and does a shareholder agreement change the default rule?
• How could an investor’s shares later be sold back, and who funds the price? Corporations Canada says transfer provisions usually address notice and how the price will be funded.
• Would shareholders take on directors’ powers? Corporations Canada warns that shareholders who assume them also assume the matching liabilities.
• What does your accountant say about the tax result of selling part of the business rather than all of it?