How do I sell my ecommerce business?

An online store is sold like any other business, but what the buyer wants sits in unusual places: the brand, the domain, the store and marketplace accounts, supplier arrangements and the customer list. If you are working out how to sell your ecommerce business, those items are where legal questions arise. Trademarks can be assigned and the transfer recorded. A sale of a business can raise a GST/HST question. The customer list is personal information. And the listing itself must not mislead. This guide covers those points and leaves price and timing to you and your advisers.

Get the financial records into shape

BDC says an accountant is important for helping you prepare year-end and interim financial statements, projections and other documents that buyers typically ask to see as part of due diligence. For an online store, ask your accountant how the records reconcile with the platform and payment reports, how sales tax was collected and remitted, and how inventory is valued. Make sure a buyer can trace the figures you present to the underlying reports. Gaps found by a buyer are better closed by you first. Also gather supplier agreements, shipping and returns records and any contracts with fulfilment or software providers, and note which of them need the other party’s consent to move to a new owner.

Move the brand by assignment

The Canadian Intellectual Property Office says you can sell, bequeath or transfer your rights in a trademark to someone else through an assignment, and its guide explains how to submit documents for registering transfers of ownership. List every mark the store uses and note whether each is registered. Make sure the sale agreement names them and that the assignment is signed and recorded for registered marks. For domain names, social accounts and marketplace seller accounts, read each provider’s terms to see whether an account can change hands.

Ask about the GST/HST election

Section 167 of the Excise Tax Act applies where a supplier supplies a business or part of a business and, under the agreement, the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business. In that case the supplier and the recipient may, except where the supplier is a registrant and the recipient is not, make a joint election in prescribed form. Under section 167(1.1), the recipient, if a registrant, files the election with the Minister by the deadline set there, and even with the election tax remains payable on a taxable supply of a service to be rendered by the supplier, a taxable supply of property by lease, licence or similar arrangement and, where the recipient is not a registrant, a taxable sale of real property. A sale of only some items may not qualify. Your accountant should decide whether it fits.

Treat the customer list as personal information

PIPEDA defines personal information as information about an identifiable individual, which can include order histories, email addresses and delivery addresses. Section 7.2 of PIPEDA, in addition to the circumstances set out in subsections 7(2) and (3), allows organizations that are parties to a prospective business transaction to use and disclose personal information without the knowledge or consent of the individual if conditions are met. Those include an agreement that limits use to the transaction, requires safeguards and, if the deal does not proceed, requires the information to be returned or destroyed within a reasonable time, and the information must be necessary. Section 7.2(4) says these rules do not apply to a business transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information. Share data in stages, starting with summaries.

Keep the listing truthful

The Competition Bureau says that under the Competition Act it is against the law to advertise or market something in a way that is false or misleading, and it publishes guidance on the general impression a claim conveys. A listing for an online store may feature traffic, repeat customers or growth. Each statement should be supportable from your reports, with the period it covers. Do not leave out a decline that changes how the numbers read. Give the period for each figure, say how it was measured, and keep the source report on file.

Plan the handover with your advisers

BDC says you will need a lawyer familiar with business transitions to supply information to buyers during due diligence, negotiate the purchase agreement and address any legal issues that arise. For an online business, give the lawyer a list of what the buyer will receive: brand, site, accounts, supplier arrangements, inventory and any software or licences. Ask the buyer and the lawyer what help you will give after closing, and for how long, and write it into the agreement so that the handover is not left to goodwill.

• Can every figure in the listing be traced to platform, payment and accounting reports?
• Which trademarks does the store use, and are the assignments signed and recorded?
• Can the domain and platform accounts be transferred under their terms?
• Has your accountant considered the section 167 election?
• Is customer information shared only under a confidentiality agreement with the limits in section 7.2?

To decide where to advertise, see How do I market my business for sale?.