How to buy a car dealership in Newfoundland and Labrador: licences, ownership rules and what transfers

In Newfoundland and Labrador, dealer licensing sits with the Registrar of Motor Vehicles, in the Motor Registration Division of the provincial government, under the Highway Traffic Act. The Division’s page for becoming an approved dealer says individuals or corporations who engage in the business of buying, selling or exchanging new or second hand motor vehicles or trailers must be approved by the Registrar. A buyer therefore deals with a government office, and with a licence that stays with the person it was issued to. This page sets out what the Act and the Division’s pages say about that licence, and flags the points where a question belongs with a lawyer or the Registrar instead. For the wider picture, including manufacturer approval, see buying a new car dealership in Canada.

The licence requirement

Under section 23 of the Highway Traffic Act, a person shall not carry on business as a dealer unless the person is licensed under the Act. Section 17 says the registrar may issue a licence to carry on business as a dealer to an applicant who meets its conditions, including submitting security in the form and amount prescribed in the regulations. If you are looking at automotive businesses for sale, plan on holding your own licence from the first day you trade.

A dealer licence is not transferrable

Section 18(1) provides that a licence issued under section 17 is not transferrable. It also remains in effect, subject to the documents and information prescribed in subsection (2) and payment of an annual fee set by the minister, until suspended or cancelled by the registrar. A buyer of the assets therefore applies in their own right. The Act does not use the words share sale or asset sale in this provision, so ask your lawyer to confirm in writing with the Registrar how a purchase of the corporation affects the existing licence. Do not assume that keeping the same corporation keeps the same permission; get the Registrar’s answer for your structure and keep it on the closing file.

What the Registrar asks about a corporation

Where the dealer is a corporation, section 17 requires a certificate of conduct from the Royal Newfoundland Constabulary or a certified criminal records check from the Royal Canadian Mounted Police for each director and officer. It also requires a current Certificate of Good Standing from the Registry of Companies. If you are bringing in new directors or officers on closing, you will want their checks ready early, and you will want the corporation’s good standing confirmed before you rely on any timetable.

Name, renewal and security

Section 23 also says a dealer shall not carry on business in a name other than the name in which the licence is issued, so any rebranding after closing needs a conversation with the Registrar first. The Motor Registration Division says dealer licences expire March 31st annually and that dealers may not carry on business once the licence has expired. It adds that the security (bond) must be maintained for 120 days after expiry. Section 18 of the Act, for its part, requires the dealer to pay the fee and file proof that its security is still valid each year before the anniversary date of the licence’s issue, so ask the Division which date applies to the licence you will hold, and check the renewal position before you sign.

Approval comes before trading

The Motor Registration Division’s page says anyone who engages in buying, selling or exchanging new or second hand motor vehicles or trailers must be approved by the Registrar, and its renewal page repeats that dealers may not carry on business as a dealer once the licence has expired. Taken together with section 23, that makes timing a legal matter and not only a commercial one. Ask the Division how long approval of a new owner takes, and ask your lawyer what the agreement should say if the licence is not in place on the closing date. Do not trade under the seller’s licence in the interim without written confirmation from the Registrar that it is permitted.

• The seller’s current dealer licence, its conditions and its renewal paperwork
• A copy of the security (bond) and the surety’s contact details
• A Certificate of Good Standing from the Registry of Companies, if you are buying a corporation
• Certificates of conduct or criminal records checks for each director and officer who will continue
• The licensed name and any other names the business trades under

BDC tells sellers they will need a lawyer familiar with business transitions to supply information to buyers during due diligence and to negotiate the purchase agreement. The Canada Revenue Agency adds, on the federal side, that it is important for a seller with a business number to contact its tax services office, since it might have to cancel the number.