What hidden liabilities come with a share purchase?

A share purchase buys the company itself rather than a list of its assets, so the buyer cannot leave old obligations behind. The CRA’s guidance shows the logic: when a corporation changes owners, the change is recorded with the corporate registry and the CRA, while a new owner of a sole proprietorship’s business cannot keep using the old business number. The company carries on as the same entity under new ownership.

Tax and payroll amounts

Amounts the company owed the CRA before closing remain the company’s to pay, and the company is now yours. The CRA’s payroll pages describe correcting under-remitted deductions, trust account examinations of payroll and GST/HST accounts, and a Voluntary Disclosures Program, all of which concern the account holder, which is the company. Directors can carry personal exposure too, which this answer on director liability covers.

Employees, workers’ compensation and privacy

Quebec’s CNESST says labour standards claims not settled before a change of owner are not cancelled. Saskatchewan’s WCB tells buyers to obtain a clearance certificate so they are not responsible for a previous owner’s balance, and says it may treat share and asset sales differently. On privacy, the Privacy Commissioner says breach reporting, notification and record-keeping duties rest with the organization in control of the information, which in a share deal is still the company.

Claims nobody has made yet

A lawsuit over something that happened before closing can still be started after it. British Columbia’s Limitation Act, for example, runs the clock from the day a claim is discovered, meaning the day the person knew or reasonably ought to have known the facts, not from the day of the event. Other provinces have their own limitation statutes, so the window for old problems to surface varies.

Finding them before you sign

Diligence brings these items to light, and the purchase agreement divides responsibility for them. The page on how to check a business for hidden debt covers the searches. Typical requests include the company’s CRA account standing, a workers’ compensation clearance, complaint and breach records, and a list of threatened claims.