What Due Diligence Involves When Buying a Business in Alberta

Due diligence is the checking you do before you are locked into a purchase. You are testing what the seller has told you against records, documents and third parties. The goal is to find problems while you can still change the price, add protections or walk away.

This article sets out the main areas to check in Alberta and a sensible order. It is a general guide. The depth of each check depends on the size and type of business, and a lawyer and accountant can tailor it.

This article covers the law of Alberta.

Start with who owns what

Confirm that the seller is who they say they are and owns what they are selling. Corporate Registry searches are requested through a registry agent, and the options include a certified current search, a certified historical search, a certificate of status and a historical certificate of status. Current and historical searches can show the registration date, owners, directors and legal addresses.

A certificate of status confirms status as of a given date only. Certificates of status are not available for trade names and partnerships. Searches cover current or formerly registered Alberta and extra-provincial corporations, partnerships, trade names and incorporated non-profits.

Check for claims against the assets

Run Personal Property Registry searches to see whether lenders have registered interests in equipment, vehicles or other assets. Search types include business debtor name, individual debtor name and serial number. Each search returns an exact match, an inexact match, no match, or both exact and inexact matches.

Any registration should be explained by the seller and dealt with in the purchase agreement. Also review leases, supplier contracts, licences and permits to see whether they can be transferred to you.

Tax and financing checks

Ask your accountant how the deal will be taxed. Without an election, each property and service in a business sale is treated as a separate supply, so GST of 5% in Alberta can apply to the taxable parts. Alberta has no provincial sales tax.

The going-concern exemption under Excise Tax Act s.167 works through a joint election by the seller and buyer. It applies where the buyer gets all or substantially all of the property reasonably necessary to carry on the business. The election is made on CRA form GST44.

• The election is not available where the supplier is a registrant and the recipient is not.
• Tax can still be payable on a taxable service the seller will render, on a taxable lease or licence, and on a taxable sale of real property where the buyer is not a registrant.
• 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.

If you plan to use the Canada Small Business Financing Program, check the limits early. Maximum financing is $1.15 million in total, made up of up to $1 million in term loans and up to $150,000 in lines of credit. Financing is capped at the lower of the purchase price or the appraised value of the eligible assets. The program does not finance share purchases or assets acquired by a holding company.

When to do each step

Try to make your offer conditional on satisfactory due diligence and financing. A lawyer can help word those conditions and set realistic time limits.

What to do next

• Ask the seller for financial statements, tax filings, contracts, leases and employee information.
• Order Corporate Registry and Personal Property Registry searches through a registry agent.
• Meet your accountant about GST and the GST44 election.
• Confirm lender eligibility and limits before you rely on financing.
• Have a lawyer review the agreement before conditions are removed.

Frequently asked questions