How to Sell Your Business in Alberta: Steps to Get Ready

Selling a business is easier when you take it in order. Owners often start by looking for a buyer, when the more useful first steps are deciding how to sell and tidying up what a buyer will want to see.

This article walks through the usual sequence, with the Alberta and federal legal points at each stage. It is general information, and your lawyer and accountant should confirm how each step applies to your business.

This article covers the law of Alberta.

Step 1: Decide between an asset sale and a share sale

In an asset sale, the buyer takes the business assets. In a share sale, the buyer takes the company that owns them. The choice affects tax, risk and what financing the buyer can use.

Alberta has no provincial sales tax, so the GST question is a federal one. How the rest of the choice plays out for you depends on your situation, so it is worth talking it through with a lawyer and an accountant before you commit.

Step 2: Prepare the business and your records

Buyers look for clean records. Searches show what the public registries say about your business, so run them yourself first.

• Corporate Registry searches, requested through a registry agent, can show the registration date, owners, directors and legal addresses.
• The search options include a certified current search, a certified historical search, a certificate of status, a historical certificate of status, and certified copies of information, transactions and attachments.
• A registry agent charges a government fee plus a service fee for Corporate Registry searches.
• A certificate of status confirms status as of a given date only, and certificates of status are not available for trade names and partnerships.
• Personal Property Registry searches include business debtor name and serial number searches, requested on a Search Request form at any registry agent office in Alberta.
• If a search shows an inexact match, you may need to search the inexact name again or search the specific registration number. Questions about a result go to the party that registered the interest.

Also gather your leases, contracts, employee records, licences and financial statements. Which legal rules apply to employees, franchises or a corporate approval on a sale depends on your situation, so ask a lawyer to confirm them early.

Step 3: Plan the tax treatment

If the buyer gets all or substantially all of the property needed to carry on the business, Excise Tax Act s.167 may apply. A joint election by you and the buyer, made in the prescribed form, means no tax is payable on the supplies under the agreement. The CRA form is GST44.

There are limits. The election is not available where you are a registrant and the buyer is not. Tax is also still payable on a taxable service you will render, a taxable lease or licence, and, where the buyer is not a registrant, a taxable sale of real property. Your accountant should map this out before you agree on a price.

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 the buyer's application. A separate rule applies if you are an estate: no tax is payable when an estate transfers a deceased person's business property to a beneficiary who is a registrant, as long as the property was used in the deceased's business immediately before death, the transfer follows the will or succession laws, the beneficiary takes it for commercial activities, and the estate and beneficiary jointly elect.

Step 4: Find a buyer and understand their financing

Many buyers of small businesses use financing, and it can shape what they can offer. Under CSBFP, the maximum 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, with the actual amount negotiated by borrower and lender. Financing is capped at the lower of the purchase price or the appraised value of the eligible assets.

Term loans can cover commercial real property, new or used equipment, leasehold improvements, intangible assets, working capital and the registration fee. The registration fee is 2% of the total loan amount and can be financed as part of the loan, while lender fees such as set-up and renewal fees are charged separately and cannot be financed under the program. Interest rates are capped: variable-rate term loans at most prime plus 3%, fixed-rate term loans at most the lender's single-family residential mortgage rate plus 3%, and lines of credit at most prime plus 5%.

Eligibility is generally limited to businesses with gross revenues of $10 million or less, and farming businesses are excluded. The program also does not fund share purchases or assets acquired by a holding company. Knowing this helps you judge whether a buyer's plan is realistic. Have buyers sign a confidentiality agreement before sharing details, and have a lawyer prepare it.

Step 5: Negotiate, close and what to do next

• Agree the structure, price allocation and conditions in writing.
• Settle who signs and files the GST44 election, if one is being used.
• Ask your lawyer how the lease for your premises fits into the sale, since that depends on the lease and your situation.
• Go over your Personal Property Registry search results with your lawyer, and remember that questions about a result go to the party that registered the interest.
• Have a lawyer draft and review the purchase agreement and closing documents.

Frequently asked questions