What does a business transfer involve in Canada?

Transferring a business means moving ownership from one person or company to another. BDC describes the buying process as a sequence: research the business and meet with the seller, draft and negotiate a letter of intent, carry out due diligence and negotiate the purchase agreement, then finalize that agreement. The sections below follow that path and then cover what the two sides handle around it.

Assets or shares

BDC says purchasing shares comes with a very different set of responsibilities compared to purchasing assets. It adds that the most dangerous unknown liabilities often arise from the seller’s pre-sale activities, and that a buyer can seek an indemnity agreement in which the seller promises to be responsible for unforeseen liabilities for a period after the sale. Ask your lawyer early which structure your deal uses, because it shapes the rest of the file.

What the seller does with CRA accounts

The Canada Revenue Agency says a seller with a business number should contact their tax services office, since the number might have to be cancelled. If the business has employees, the seller must close the payroll account, and a GST/HST account must be closed through the tax services office. The CRA also says a seller may be able to jointly elect with the purchaser so that no GST/HST is payable on the sale. That election cannot be made if only one or more assets are sold, or if the seller is a registrant and the purchaser is not. The GST/HST on a business sale guide goes further.

Personal information shared during the deal

PIPEDA defines personal information as information about an identifiable individual. Its Part 1 applies to personal information an organization handles in the course of commercial activities, and to employee information only in connection with a federal work, undertaking or business, and an order can exempt activity within a province that has substantially similar legislation, so ask your lawyer which privacy law governs your deal. Under section 7.2(1) of PIPEDA, in addition to the circumstances in sections 7(2) and (3), organizations that are parties to a prospective business transaction may use and disclose personal information without the individual’s knowledge or consent if two conditions are met. First, the organizations have an agreement requiring the recipient to use it solely for purposes related to the transaction, protect it with appropriate safeguards and, if the transaction does not proceed, return or destroy it within a reasonable time. Second, the information is necessary to decide whether to proceed and, if so, to complete the transaction. Section 7.2(4) says this does not apply to a transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information.

What else may apply

Ask your lawyer whether provincial taxes, licences, or landlord or franchisor approvals add steps for your business in your province. Our guide to property transfer tax on a business purchase in British Columbia shows how one province handles one of them. A closing checklist from your lawyer can list what applies to your deal.