What to Include in a Business Purchase Agreement in Alberta

A business purchase agreement is the document that turns a handshake into a deal. Once signed, it controls what you get, what you pay and what happens if something goes wrong. Gaps are expensive, because anything left vague tends to be argued about later.

Below are the clauses most buyers and sellers of an Alberta business should expect to see, with a plain explanation of why each one matters. Your deal may need more, so have a lawyer review the draft.

This article covers the law of Alberta.

Who is buying what

Start with the parties and the structure. Name the buyer and seller exactly as registered, and say whether the deal is a sale of shares or of assets. A Corporate Registry search can show the registration date, owners, directors and legal addresses, which helps you confirm the names.

For an asset sale, attach a detailed list of the assets: equipment, inventory, intellectual property, the business name, customer lists, leases and contracts. Anything not listed may not transfer. For a share sale, state the number and class of shares and confirm that the seller owns them.

Price, payment and tax

State the total price, how it is paid, and any deposit, holdback or instalments. In an asset sale, also say how the price is divided among the assets. Without an election, each property and service is treated as a separate supply with consideration allocated to it, so GST at 5% can apply to the taxable parts.

If the buyer is getting all or substantially all of the property necessary to carry on the business, the parties may be able to make a joint election so that no tax is payable on the supplies. The form is GST44. Your agreement should say who will sign and file it. A registrant buyer must file the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable.

Watch the exceptions. The election is not available where the seller is a registrant and the buyer is not. Tax can still be payable on a service the seller will provide, on a taxable lease or licence, and on a taxable sale of real property if the buyer is not a registrant. Ask your accountant to review these points.

Conditions that protect the buyer

A condition is something that must happen before either side has to close. Common ones include:

• Satisfactory due diligence, including registry searches.
• Financing approval, such as a lender's commitment.
• Landlord consent to a lease transfer or new lease.
• Required permits, licences or third-party consents.
• Release of registered security interests against the assets.

On searches, a Personal Property Registry search can be requested by business debtor name, serial number and other types. A result may be an exact match, inexact match, no match, or both, and questions about a result go to the party that registered the interest. If financing matters, remember that CSBFP can finance eligible assets of an existing business, capped at the lower of the purchase price or appraised value, but not share purchases.

Warranties, non-compete and other promises

The seller's warranties are statements about the business, such as the accuracy of financial statements and the absence of undisclosed claims. Indemnities cover specific losses. Together they give you a remedy if the business is not as described.

A non-compete clause restricts the seller from starting or joining a competing business. It should be clear about the length of time, the area and the type of activity covered. Whether a court will enforce a non-compete depends on the facts, so it is worth getting legal advice on the wording.

Other clauses to consider include a transition period where the seller helps train the buyer, handling of employees, treatment of customer deposits, and how disputes are resolved.

Closing date and what to do next

Set a closing date and list what each side delivers on that date: payment, signed transfer documents, releases, keys, passwords and the GST election if one is being made. Decide what happens if closing is delayed, and who bears the risk of loss between signing and closing.

• Confirm names and structure through registry searches.
• Attach a complete list of assets or shares being sold.
• Settle price, allocation and GST treatment with your accountant.
• Line up conditions with your financing timeline.
• Agree the non-compete and transition terms in writing.
• Have a lawyer review the whole agreement before you sign.

Frequently asked questions