Do I Need a Lawyer to Buy a Business in Nova Scotia?

Buying a small business can feel like buying a house: you agree on a price, sign something and take the keys. In reality you are taking on a bundle of assets, contracts, tax accounts and sometimes debts, and the way the deal is set up changes who is responsible for what.

If you are a first-time buyer in Nova Scotia, it is fair to ask whether you can manage this yourself. This article explains what a lawyer does, what can go wrong without one, and which parts of the deal call for paperwork.

This article covers the law of Nova Scotia.

What a lawyer does in a business purchase

A lawyer does more than type up the final agreement. The work usually covers several jobs:

• Helping you decide whether to buy the business's assets or the company's shares.
• Checking that what is being sold belongs to the seller and is free of claims.
• Drafting or reviewing the purchase agreement so the price, what is included and what happens if something goes wrong are clearly written down.
• Lining up the tax elections and government filings that go with the deal.
• Explaining the risks in plain words before you sign, not after.

Whether to hire a lawyer is your decision. The more useful question is which parts of the deal you are comfortable getting wrong.

Parts of the deal that involve paperwork

Even a simple purchase touches several offices and forms. This table shows the main ones.

What can go wrong without legal help

Most problems come from small details that look harmless on the day.

• Missing the tax election. The GST/HST election is only available if the buyer acquires all or substantially all of the property needed to carry on the business, which CRA generally treats as 90% or more. Buying only a few assets is generally not a sale of a business, so the election is not available.
• Missing the deadline. A buyer who is a GST/HST registrant must file Form GST44 on or before the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable, although CRA may allow a later date if the buyer applies.
• Assuming the election always works. It cannot be used if the seller is a registrant and the buyer is not, and GST/HST can still apply to some services, leases or licences, and to some real property sales.
• Not searching for liens. The Personal Property Registry shows security interests but is not a register of ownership and does not show liens on land. Searches need accurate legal names.
• Using the wrong filings. Share and asset purchases lead to different registry and CRA paperwork.

Situations that add extra risk

Some buyers face additional rules that are easy to overlook.

• Buying from a relative or spouse. If property is transferred to a spouse or common-law partner, a person under 18, or someone not dealing at arm's length, the buyer and seller can be jointly liable for the seller's tax, up to the excess of the property's fair market value over what was paid. A similar rule applies to GST/HST debts, and the Minister may assess the buyer at any time.
• Buying as a non-Canadian. Below the review thresholds, an acquisition of control of a Canadian business by a non-Canadian still requires notification under the Investment Canada Act.
• Larger deals. Advance notice to the Competition Bureau is generally required only when both the transaction-size and party-size tests are met, and most small-business purchases fall far below them.

Employee rights, assignment of contracts and leases, and lien priority are also governed by Nova Scotia law and depend on the facts, so they are worth confirming with a lawyer before you commit.

What to do next

• Ask the seller for financial statements, a list of assets, key contracts and the lease.
• Confirm the seller's exact legal name and whether the business is a sole proprietorship, partnership or corporation.
• Decide whether you expect to buy assets or shares.
• Ask your accountant how the price allocation and GST/HST will work.
• Have a lawyer review the agreement before you sign or pay a deposit.

Getting advice before signing is usually far easier than fixing a problem after closing.

Frequently asked questions