How to Buy an Existing Business in Alberta: Step by Step

Buying an existing business can be faster than starting one, but the process has many moving parts. Most deals follow the same general path, even though the details change from one business to the next.

This article walks through each stage in plain language, who usually does what, and the Alberta and federal points you are likely to meet along the way. It is general information, not advice on your deal.

This article covers the law of Alberta.

Step 1: Decide what you are buying

Before anything else, work out whether you are buying the business's assets or the shares of the company that owns it. In an asset purchase you pick the property you take over. In a share purchase you take over the company itself, along with everything it has done.

This choice matters for money. For example, the federal Canada Small Business Financing Program does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded that way. Raise the structure with your lawyer and accountant early.

Step 2: Confidentiality, financials and a letter of intent

Sellers usually ask you to sign a non-disclosure agreement before sharing financial records. Read it for how long it lasts and what you may share with your lender, lawyer and accountant. Then you review the financial statements, tax filings, customer and supplier information and lease terms the seller provides.

If you still want to proceed, the parties often sign a letter of intent that outlines price, structure, timing and conditions. How much of a letter of intent is meant to bind you depends on how it is written, so have it reviewed before you sign.

Step 3: Due diligence and registry searches

Due diligence means checking that the business is what the seller says it is. Your lawyer and accountant will look at contracts, leases, employees, licences, debts and tax compliance. Two Alberta searches are especially useful.

Corporate Registry searches are requested through a registry agent and include a certified current search, a certified historical search and a certificate of status. They can show the registration date, owners, directors and legal addresses of current or formerly registered Alberta and extra-provincial corporations, partnerships, trade names and incorporated non-profits. A certificate of status confirms status as of a given date only, and certificates of status are not available for trade names and partnerships.

A Personal Property Registry search is a second check you can run on the seller, and your lawyer can explain what the results mean for your deal. Search types include business debtor name and serial number, which covers vehicles, trailers, aircraft and boats, and each is requested on a Search Request form submitted at any registry agent office in Alberta. A search returns an exact match, an inexact match, no match, or both exact and inexact matches. For inexact matches you may need to search the inexact name again or search the specific registration number, and questions about a result go to the party that registered the interest.

Step 4: Tax and financing

Without an election, each property and service in a business sale is treated as a separate supply with the price allocated to it, so GST (5% in Alberta) can apply to the taxable parts. Alberta has no provincial sales tax. The going-concern rule in section 167 of the Excise Tax Act can apply when the buyer gets all or substantially all of the property reasonably necessary to carry on the business, and if the seller and buyer make a valid election under it, no tax is payable on the supplies under the agreement. It works through a joint election by seller and buyer on CRA form GST44.

There are limits. The election is not available where the seller is a GST registrant and the buyer is not. Even with a valid election, tax is still payable on a taxable service the seller will render, on a taxable lease or licence, and, where the buyer is not a registrant, on a taxable sale of real property. If the buyer is a registrant, it must file the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable, although the Minister may accept a later date on application. Confirm the form's instructions with your accountant.

For financing, the Canada Small Business Financing Program allows up to $1.15 million in total, made up of up to $1 million in term loans and up to $150,000 in lines of credit, with the actual amount negotiated between borrower and lender. For an existing business it can finance eligible assets, capped at the lower of the purchase price or the appraised value of those assets. Eligibility is generally limited to businesses with gross revenues of $10 million or less, and farming businesses are excluded. The registration fee is 2% of the total loan amount and can be financed, but lender set-up and renewal fees are separate and cannot be financed.

Step 5: Purchase agreement, closing and next steps

The purchase agreement is the binding contract. It sets the price, what is included, promises each side makes, conditions that must be met and what happens if something goes wrong. Your lawyer drafts or reviews it, and the closing then brings payment, transfer documents and any tax elections together.

• Decide asset purchase or share purchase with your lawyer and accountant.
• Have any non-disclosure agreement and letter of intent reviewed before signing.
• Order Corporate Registry and Personal Property Registry searches through a registry agent.
• Ask your accountant whether a GST44 election applies and who files it.
• Confirm financing terms with your lender before you remove conditions.
• Keep copies of every signed document and closing receipt.

Frequently asked questions