What if the seller can’t separate wanted assets from unwanted ones?

A company may hold equipment, contracts, a lease and debts in the same place. If the seller cannot say which items belong to the business being sold, the buyer cannot tell what is being bought. BC’s financial services regulator notes that a business can be sold as an asset sale or a sale of the shares. Ask your lawyer how each structure would deal with the items you do not want.

Put values on each asset

Under section 167 of the federal Excise Tax Act, if the buyer acquires all or substantially all of the property that can reasonably be regarded as necessary to carry on the business, the supplier is deemed to make a separate supply of each property and service, each for the part of the price that can reasonably be attributed to it. The supplier and recipient may make a joint election, except where the supplier is a registrant and the recipient is not.

Search for liens on the items

In Ontario, section 43 of the Personal Property Security Act has the registrar issue a certificate on a request for a search of the individual or business debtor name index or the motor vehicle identification number index, and payment of the fee. The certificate is proof of its contents in the absence of evidence to the contrary. Confirm which province’s registry applies to the seller and the assets, and search by the seller’s exact legal name.

Leases and clearances do not move by themselves

Under Ontario’s Commercial Tenancies Act section 23(1), a covenant against assigning a lease without consent is deemed subject to a proviso that consent is not to be unreasonably withheld, unless the lease contains an express provision to the contrary. The WSIB says that if you are purchasing a business’s assets you should get a purchase certificate, and that it may hold the purchaser liable for the vendor’s amounts owing if you do not have a valid one. Alberta’s WCB says there is a responsibility to get a clearance when buying a business, its stock or equipment.

Compare the two structures in asset sale vs share sale and in the glossary entry for an asset sale.