Buying Business Assets in BC: Which Liabilities Come With Them?

Buying the assets of a business is often seen as safer than buying its shares, because you choose what you take. In practice, some of the seller's obligations can still follow the equipment, inventory and people you take over.

This article walks through the main places that exposure shows up in British Columbia: registered claims against assets, tax, employees, and non-resident sellers. It also covers the searches and steps that can reduce the risk. It is general information, and your deal may turn on facts a lawyer or accountant can confirm.

This article covers the law of British Columbia.

Asset purchase versus share purchase

In a share purchase, the buyer takes the company with its history and liabilities. An asset purchase lets you pick the assets, but that choice does not wipe out every claim attached to them.

On an asset purchase, the price must be allocated to each asset at fair market value, with the remaining balance attributed to goodwill, and the allocation should match what the vendor reports. Agreeing on this early avoids disputes later.

Liens and lenders' claims on the assets

The BC Personal Property Registry (PPR) records security agreements under the Personal Property Security Act, commercial liens under the Commercial Liens Act, and buyers' interests in goods left with the seller under the Sale of Goods Act. A search can be done by name, serial number or registration number, and you can also request copies of registered documents.

A prior lender's registration against business equipment, inventory or receivables can rank ahead of a buyer's claim, because priority between perfected security interests in the same collateral is generally decided by order of registration, possession or perfection. A recent equipment-financing lender with a purchase money security interest may rank first, and it can perfect within 15 days after the debtor obtains possession.

• A registration can be made before the security agreement is made, so a search may show a lender's claim not yet fully in use.
• Registrations last 1 to 25 years, or an infinite term, so an old registration may still be live and you should check the expiry or term in the search result.
• Builders' liens, family maintenance liens and some other liens are filed with other agencies, so a PPR search alone does not reveal every lien.

A customer who buys goods sold in the ordinary course of the seller's business takes free of a perfected or unperfected security interest, unless the buyer knows the sale breaches the security agreement, and this protection does not extend to a purchaser of the whole business or its assets.

Tax exposure: PST, GST/HST and non-resident sellers

For PST, a buyer should obtain a PST clearance certificate before buying a business, and this applies to bulk transactions too. Without one, the buyer is liable for an amount equal to any outstanding amount owed by the seller. A bulk transaction includes buying more than 90% of a collector's inventory in B.C., substantially all goods or software used in the B.C. business, or an interest in that business. The buyer applies online or by Application for Clearance (FIN 447), with the collector's consent.

If you have no PST number, you must self-assess PST on taxable items using the Casual Remittance Return (FIN 405) by the last day of the month following the month of purchase. Parties cannot raise the goodwill price and lower the taxable-asset prices to avoid PST.

For GST/HST, under section 167 of the Excise Tax Act the buyer and seller may jointly elect (Form GST44) so no GST/HST is payable on the sale if the buyer acquires all or substantially all (at least 90%) of the property needed to carry on the business. The section 167 election is unavailable where the supplier is a registrant and the recipient is not. Even with the election, GST/HST can still apply to certain services, leases and licences, and, for non-registrant recipients, to sales of real property.

If the seller is a non-resident and you buy taxable Canadian property, section 116(5) of the Income Tax Act requires you to remit 25% of the amount by which the cost exceeds the certificate limit within 30 days after the end of the month of acquisition, and with no certificate the limit is zero. You are not liable under section 116(5) if, after reasonable inquiry, you had no reason to believe the seller was not resident in Canada, if a treaty-protected property rule applies under s.116(5.01), or if the Minister issued a s.116(4) certificate.

Employees who stay with the business

Under Employment Standards Act s.97, if all or part of a business is disposed of, an employee's employment is deemed continuous and uninterrupted. The buyer takes on the seller's obligations, such as past service for severance or compensation, to employees who stay.

WorkSafeBC clearance and lien rules are also worth checking with a lawyer or accountant before closing.

Steps to take before closing

• Search the PPR on the seller's name and on serial numbers of key equipment.
• If the business owns or holds an interest in land, order a Land Title Office title search, and consider a separate after-3:00 p.m. search for builders' liens submitted but not yet registered.
• Run the federal Bankruptcy and Insolvency Records Search on the seller.
• Do a corporate search on a BC company to see the company summary and Notice of Articles showing current directors.
• Obtain a PST clearance certificate before buying a business, including when the deal is a bulk transaction.
• Ask the seller's lender to discharge its registration at closing, using a written demand if needed.

A debtor or any person with an interest in property within the collateral description may give a written demand that a secured party amend or discharge a registration. The secured party must register a financing change statement within 40 days, and no fee may be charged unless previously agreed. Because of that timing, start early.

Searches have costs. A government-staff PPR search costs $10, and a client online search costs $7 plus a possible $1.50 operator fee. Direct online PPR access is limited to professionals with a premium account, so a buyer usually searches through Service BC, a mailed request, or a lawyer or search agent.

What to do next

Before you sign, list every asset you plan to buy and every group of people or agencies that could have a claim: lenders, tax authorities, employees and non-resident sellers. Then match each to a search or protection above.

If a claim surfaces after closing, time limits apply. A court proceeding generally must not be started more than 2 years after the claim is discovered, which is when you knew or reasonably ought to have known of the loss, that the defendant's act caused it, and that a proceeding is appropriate. Have a lawyer and an accountant review the deal terms and confirm how these rules apply to your facts.

Frequently asked questions