Do You Need a Lawyer to Buy a Business in British Columbia?

If you are buying your first business, paying for legal help can feel optional, especially when the seller is friendly and the price has been agreed. The better question is which parts of the deal could cost you money later if they are done wrong.

This article walks through the main legal tasks in a British Columbia business purchase and the risks tied to each. It is general information, and whether you hire a lawyer is your decision.

This article covers the law of British Columbia.

Where the law touches a business purchase

A business sale is not one document. It is a bundle of checks, tax steps and contract terms, and several of them have rules set by statute. Some are easy to overlook if you have not done this before.

Whether you are buying assets or shares also changes the picture. In a share purchase the buyer takes the company with its history and liabilities, and the tax values of the corporation's assets do not change. On an asset purchase the price must be allocated to each asset at fair market value, with the remaining balance attributed to goodwill.

Searches that protect you

A lender's claim over equipment, inventory or receivables can stay in place after you buy. The Personal Property Registry records security agreements and commercial liens, and a prior lender's registration can rank ahead of your claim. Direct online PPR access is limited to professionals with a premium account, so buyers usually search through Service BC, a mailed request, or a lawyer or search agent.

No single search covers everything. Builders' liens and some other liens are filed elsewhere, and land searches cover land only, not equipment or inventory. A federal search can show bankruptcies, proposals and receiverships.

Tax and employee obligations that follow the business

• PST: the buyer is told to obtain a PST clearance certificate before buying a business, including in bulk transactions. Without one, the buyer is liable for an amount equal to any outstanding amount owed by the seller.
• GST/HST: the buyer and seller may jointly elect (Form GST44) so no GST/HST is payable on a sale where the buyer acquires all or substantially all of the property needed to carry on the business. The election is unavailable where the seller is a registrant and the buyer is not, and even with the election, GST/HST can still apply to certain services, leases and licences, and, for buyers who are not registrants, to sales of real property.
• Non-resident sellers: a buyer of taxable Canadian property from a non-resident must remit 25% of the amount by which the cost exceeds the certificate limit, unless an exception applies.
• Employees: if all or part of a business is disposed of, employment is deemed continuous, so the buyer takes on obligations such as past service for employees who stay.

There are exceptions that change the result. If the seller terminates employees before the sale, the seller owes their outstanding wages and compensation and the purchaser is not liable. If a trustee in bankruptcy sells the business as a going concern, the buyer is not liable for wages owed before the bankruptcy. Which rule applies depends on how the deal is structured, which is a good reason to get advice before signing.

Contract risks: deposits, land and claims after closing

If the sale includes land or a lease, a contract respecting land is not enforceable unless there is a signed writing, an act or acquiescence by the party to be held, or reasonable reliance making enforcement necessary to avoid unfairness. Paying or accepting a deposit or part payment counts as such an act. That means a handshake deal with a deposit may bind you more than you expect.

If a deal collapses, the Law and Equity Act allows a court to relieve against penalties and forfeitures on terms, so a party facing forfeiture of a deposit may ask a BC court for relief, though the Act has no dedicated deposit rules. After closing, a court proceeding must not be commenced more than 2 years after the claim is discovered. That period can be extended if a person acknowledges liability, and the acknowledgment generally must be in writing and signed.

What to do next

You do not have to decide everything at once. Many buyers speak with a lawyer before signing a letter of intent or making a deposit, because that is before you have committed to terms or put money on the table. Even if you decide to handle the negotiation yourself, consider having a lawyer review the final agreement and the closing steps.

• Decide whether you are buying assets or shares, and why.
• List the searches you need: personal property, land, bankruptcy and corporate.
• Ask about the PST clearance certificate early.
• Find out how many employees will stay and their length of service.
• Ask your accountant about GST/HST and the price allocation.
• Keep a record of every deposit and signed document.

Frequently asked questions