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Asset Acquisition

Acquisition refers to a business takeover, buying someone else’s business. There are three ways to perform the acquisition in Canada:

  • to purchase the assets
  • to purchase the shares 
  • statutory amalgamations (less common) 

 

For the last 30 years in Canada, there have been 16,103 business acquisitions reported whereas only 4,871 new businesses were created. Out of 16, 103 business acquisitions 13,748 were direct and others were indirect. Of all Canadian territories, Ontario had the greatest number of investments. Business and services industries are the top investment sector whereas manufacturing is on the third place.

asset acquisition

 

Usually, asset acquisition or purchase is more advantageous to the buyers whereas share acquisition is better for sellers, in terms of taxes. With asset purchase, the buyer doesn’t take the responsibility for prior tax activities of that corporation. A seller must swear under oath that he has paid all the liabilities unless the sale couldn’t go through. Asset acquisition protects buyers from unsolved businesses of the seller. If a seller has been sued or in debt, the buyer won’t assume any of those liabilities.  

 

asset acquisition

 

In What Situation the Asset Buyer Can Be Responsible for the Seller’s Liabilities?

 

If the buyer keeps all the personnel or when it is obvious that the buyer had an intention to avoid liabilities, the court can consider the asset acquisition as de facto merger.

 

What to consider when purchasing assets of one company?

 

When purchasing the assets of one company, there can be a number of financial strings tied to a business’ assets. For instance, the Bulk Sales Act outlines requirements that must be met in order to prevent a business owner from selling its assets before satisfying any debts they are owed. The act allows creditors to apply in court to have the buy-sell transaction rendered as void. It can even possibly make the buyer liable to those creditors for the seller’s debts. An Asset Purchase Agreement is also vital as it will itemize a list of assets included and excluded in the sale. As Asset Purchase Agreement covers terms regarding tax matters, indemnification, purchase and sale of stock, employees, representations and warranties.

What happens with employees after the asset acquisition?

In Canada, all the employee contracts are terminated after the purchase of assets. The only exception is Quebec. In Ontario, if an employee gets a job offer from a new employer (the asset buyer) he has the legal right to turn down that offer. The employee in question would still get the severance pay and statutory termination. The severance costs are usually to the account of a seller.

 

What are the Legal Costs of Being Acquired?

Legal costs can vary, it depends on the deal structure as well as on the buyer and the seller. Every deal is different in its nature and the time a lawyer spends on it varies. Legal costs also depend on the size of the company, how organized are your books, are there any major issues such as unpaid taxes. Some other factors are also unclear ownership, employments violations or unresolved disputes. You can always call our corporate lawyer to schedule a free consultation and learn what are your best options.