Do I Need a Lawyer to Buy a Business in New Brunswick?

You have found a business you want to buy, and an offer is on the table. Hiring a lawyer feels like an extra step in a deal that already costs a lot. It is fair to ask whether you must do it, or whether it is simply wise.

This article separates what the law clearly requires from what is a good idea, and explains the kinds of problems that can go unnoticed when nobody reviews the deal.

This article covers the law of New Brunswick.

Is a lawyer legally required?

Whether a lawyer is strictly required for every private business purchase depends on the deal, and it is worth confirming with a lawyer. What is clear is that some steps cannot be done without one. If the business owns land, a lawyer is needed to register the transfer, because an application for land title registration must include a certificate of title certified by a Law Society member authorized to practise law. Only Law Society members with an agreement with Service New Brunswick can submit electronic instruments.

So a purchase that includes a building or lot will involve a lawyer at the registration stage in any case. The more useful question is whether to involve one earlier, before you sign.

Risks that go unchecked without a review

• Registered security interests. A lender's registered claim over equipment, inventory or receivables can stay attached to assets you acquire.
• Inherited liabilities. In a share purchase the company stays the same legal entity, so you take it with its past liabilities inside.
• Employee entitlements. In a sale of a business, employees' service is deemed continuous with the purchaser, so you inherit it for notice and similar entitlements.
• Tax elections and deadlines. A GST/HST election on a business sale must be made in the prescribed form and filed by a set deadline.
• Leases and licences. Whether the lease can be assigned, and whether permits move to you, depends on their terms and on the licensing body, and should be checked in each case.

Liens and the PPSA search

Anyone may search the PPSA Registry and obtain a printed search result, and the result is evidence of registration absent evidence to the contrary. A buyer can search the seller's name to find registered security interests before closing. The length of each registration is set out in the financing statement, so it must be read from the result.

Do not assume you will be protected if you miss something. A buyer of goods in the seller's ordinary course of business takes free of security interests, but buying a whole business's equipment is not an ordinary-course sale, so that protection generally does not help an asset buyer. Registration alone is also not notice or knowledge of a financing statement's contents, which means the details need to be read, not guessed.

Ranking can turn on whether a claim was registered. An unperfected security interest is subordinate to a judgment creditor who registered a notice of judgment before perfection, and is not effective against a trustee in bankruptcy if unperfected at bankruptcy.

Taxes, approvals and special cases

The tax side of a purchase can be costly if missed. The GST/HST election is available only if the buyer acquires all or substantially all the property reasonably necessary to carry on the business, and it cannot be made where the seller is a registrant and the buyer is not. Where it is available, the buyer who is a registrant files it by the due date of its first return, unless the Minister allows a later date.

If the seller is a non-resident and sells taxable Canadian property, the buyer must remit 25% of the price within 30 days after the end of the month of acquisition, unless a certificate has been issued. The rate is 50% for certain property. Because the current rules should be confirmed, raise this early if the seller lives outside Canada.

If land changes hands in an asset sale, real property transfer tax of 1% of the greater of the consideration or the assessed value applies on registration of the deed. If the seller is a corporation selling substantially all its property, its shareholders must approve by special resolution.

Choosing and checking a lawyer, then next steps

Every member of the Law Society of New Brunswick is a notary public, but a member who is not practising may not use any notarial power that involves practising law. Only practising members can practise law, and non-practising, retired, suspended, disbarred and resigned members cannot practise law or handle trust funds. Students-at-law may practise in limited circumstances under a supervising lawyer.

• Ask the lawyer to confirm they are a practising member of the Law Society.
• Have the lawyer see the offer before you sign it, including any conditions.
• Order a PPSA Registry search on the seller's name.
• Collect the lease, licences, employee list and recent financial statements.
• Ask an accountant about GST/HST and income tax on the deal.
• Confirm whether land is included and who will register the transfer.

Frequently asked questions