What should I know before buying a manufacturer with fixed assets?

A manufacturer that owns its plant and equipment is priced partly on what it owns, so the paperwork around that ownership matters as much as the income statement. Three questions produce most of the surprises: who else has a claim on the equipment, what the site is permitted and obliged to do environmentally, and how the price is divided among the assets for tax.

Who else has a claim on the equipment

A lien can be registered against personal property as security that a debt or loan is repaid, and a machine can carry one even when the plant looks debt-free. British Columbia’s Personal Property Registry records those interests against businesses and individuals, and Ontario’s Access Now service shows whether a lien has been filed. Search under the seller’s legal name in each province where equipment is held.

Environmental approvals and orders

A plant that emits, discharges or handles waste may need government approvals. In Ontario, an Environmental Compliance Approval is the permission that lets a business operate a facility with controls for air, noise, waste and sewage, and the Environmental Protection Act lets the Director order a person who owns or owned, or has or had management or control of, an undertaking or property to take certain steps. Manitoba’s Environmental Approvals Branch issues permits, registrations and certificates covering matters such as hazardous waste and petroleum storage. Confirm each approval covers what the plant does today, and ask a lawyer how an order against a past owner could reach a new one.

How the price is split

The CRA notes that a sales agreement may set a price for each asset, a value for inventory and, where applicable, an amount attributed to goodwill. The seller may face a recapture or a terminal loss of capital cost allowance on the assets sold, while a buyer deducts the cost of depreciable property such as equipment and buildings as a yearly allowance rather than all at once. Each side therefore has a tax reason to care about the split, so agree it in writing.

The wider checklist for plant-based businesses is in Buying a manufacturing business in Canada.