Steps to Buying an Existing Business in British Columbia

Buying an existing business can be quicker than starting one, but it involves many steps, and skipping one can leave you with someone else's debts. For a first-time buyer, the order of the steps matters as much as the steps themselves.

This article walks through the path from first inquiry to closing day in British Columbia. It is general information, and each deal is different, so a lawyer and an accountant should review yours.

This article covers the law of British Columbia.

Step 1: Inquiry and confidentiality

You start by learning about the business: what it sells, why the owner is selling and roughly what the owner expects. Sellers commonly ask a buyer to sign a confidentiality agreement before sharing financial records. Read it carefully, because it may limit what you can tell your lender, advisers or family.

At this stage, decide how you would like to buy. You can buy the assets, or you can buy the shares of the company. On an asset purchase the price is allocated to each asset, with the balance going to goodwill. In a share purchase the buyer takes the company with its history and liabilities.

Step 2: The letter of intent

A letter of intent sets out the main terms before the full contract: price, what is included, timing and conditions. Whether parts of it are binding depends on how it is written, so have a lawyer review it before you sign, and make sure it says clearly what is and is not binding.

If a deposit is paid, know what happens to it if the deal fails. The Law and Equity Act has no dedicated deposit rules, but a court may relieve against penalties and forfeitures on terms it sees fit. If the sale includes land or a lease, paying or accepting a deposit or part payment counts as an act that can make a contract respecting land enforceable without a signed writing.

Step 3: Due diligence

Due diligence is your chance to check what the seller has told you. Typical checks include the following.

A PPR search alone does not reveal every lien, since builders' liens and family maintenance liens are filed with other agencies. Also review the employees, contracts, lease and tax filings. You may also want to ask about WorkSafeBC clearance, which is worth confirming with your lawyer.

Step 4: The purchase agreement

The purchase agreement turns the letter of intent into binding terms. Your lawyer will check that it deals with the following.

• The assets or shares being bought and the allocation of the price.
• PST: a buyer should obtain a PST clearance certificate before buying a business, or may be liable for the seller's outstanding amount. A bulk transaction includes buying more than 90% of inventory or substantially all goods used in the B.C. business, and the buyer applies on FIN 447 with the collector's consent.
• GST/HST: the joint election on Form GST44, where the buyer acquires at least 90% of the property needed to carry on the business.
• Employees: employment is deemed continuous for staff who stay, so the buyer takes on past service obligations. If the seller terminates employees before the sale, the seller owes their wages and compensation.
• Non-resident sellers: a buyer of taxable Canadian property from a non-resident may have to remit 25% under the Income Tax Act unless an exception applies.

Step 5: Closing and afterward

At closing, money and documents change hands. A discharge of the seller's lender can be required by written demand, and the secured party must register a financing change statement within 40 days. Plan for that timing in the agreement.

After closing, a buyer without a PST number must self-assess PST on taxable items using the Casual Remittance Return (FIN 405) by the last day of the month following the purchase. A change of owners may require a new CRA business number and program accounts. If something the seller told you proves false, a court proceeding must generally be started within 2 years after the claim is discovered. That period can be extended if the other side acknowledges liability in writing.

• Keep a closing binder of the signed agreement and searches.
• Diarize your PST and GST/HST deadlines.
• Talk to a lawyer promptly if you suspect a problem.

Frequently asked questions