Limousine and black car service due diligence

Once you are under a letter of intent, the work becomes a matter of proof. For a limousine or black car company, the proof you need falls into four groups: permission to operate, ownership of the vehicles, the people who drive them, and the customers who book them. Ask for documents in that order, because the first group can end the deal before you spend money on the others. Keep a list of what you asked for, what arrived and what the seller said they could not find.

Start with the licence or authorization

Get the actual licence, its conditions and the issuing authority’s written position on a change of ownership. In British Columbia, the Passenger Transportation Board says all terms and conditions attached to a licence transfer with it, and that a single term cannot be transferred on its own, so read them. In Québec, the Act treats an automobile as qualified if it is authorized by the Société de l’assurance automobile du Québec or registered with the operator of a transportation system authorized by the Commission des transports du Québec, so ask which applies to each automobile and for the matching authorization or registration. In other provinces, ask the city or province directly.

Search the registries for each vehicle

Ask for the ownership and registration documents for every vehicle and match them to the seller’s list. Ontario’s Personal Property Security Act provides that a security interest can be perfected by registration, so ask your lawyer to search the personal property security registry in the province for liens against the company and its vehicles, and compare the results with the debts the seller disclosed. The same Act provides that where a motor vehicle classified as the seller’s equipment is sold other than in the ordinary course of the seller’s business, the buyer takes it free of a security interest given by the seller, even one perfected by registration, unless the vehicle identification number is set out in the designated place on a registered financing statement or financing change statement, or the buyer knew the sale breached the security agreement. Ask your lawyer what that means for searches by vehicle identification number. Outside Ontario, ask your lawyer which registry and statute apply.

Read the driver files

For each chauffeur, ask for the licence class, any required vehicle-for-hire or passenger transportation permit, the driving record and any incident reports. In Québec, the Act sets out conditions a person must meet to be an authorized driver, including having no judicial record related to the aptitudes and conduct required to drive passengers, so confirm that each current driver holds a current authorization or registration. Ask the seller to explain any gaps, and decide in advance which would be a reason to walk away.

Test the accounts and the insurance

Ask for the booking history by client, the contracts or standing arrangements behind the largest accounts, and any notice of termination. With the seller’s consent, speak to the largest clients. Ask for the insurance policies and the claims history, and ask the insurer whether the cover continues after a change of ownership.

Check the corporate and tax record

Ask for the corporate records, recent tax filings and confirmation that payroll remittances and sales tax returns are current. If you are buying shares, ask your lawyer whether the company’s past liabilities stay with it and how the agreement should deal with anything that surfaces later. If you are buying assets, ask which debts and contracts you are and are not taking on, and put the answer in writing.

Check also for litigation, accident claims, complaints to the licensing authority and any enforcement history. Ask the seller for a written list of incidents involving passengers or vehicles, and compare it with what the insurer and the authority report. Differences between those lists are worth a direct conversation.

Review the contracts and leases

Ask for every contract that would carry over: client agreements, referral arrangements, dispatch or booking software, vehicle leases, garage or parking premises and any airport or venue access arrangements. Read each for a clause that lets the other party end it or requires consent when ownership changes. Where consent is needed, decide whether it must be in hand before closing.

Confirm insurance and safety standing

Ask for the current policies, the claims history, and the insurer’s written confirmation of what happens on a change of ownership. Ask the licensing authority and the provincial safety regulator whether they hold any complaints, notices or conditions against the company or its vehicles. Where the business holds a safety certificate or operates under a carrier profile, ask what that record shows, and whether it stays with the company or moves to you. Any difference between what the seller says and what the records show is a finding to resolve before closing, not afterwards.

Finally, set a date by which each open request must be answered, and agree with the seller what happens if an answer does not arrive. A deal that drifts without a deadline can leave you holding a good company at the wrong time of year, or a bad one with no right to leave.

• A licence that the authority says will not transfer to you, or a fleet number cap that is smaller than what you were told.
• Accounts that the client says belong to the seller personally.
• A vehicle financed or leased in a way the seller did not disclose.
• A chauffeur whose record would stop them working for you.
• An unresolved claim, complaint or enforcement action against the company.

For a broader checklist, see what due diligence documents to ask for when buying a business.