Key Differences Between an Asset Purchase and a Share Purchase in Business Acquisitions

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Introduction:

When buying a business in British Columbia, two primary methods are available: an asset purchase and a share purchase. Each approach comes with its own legal, financial, and tax implications, and understanding these differences is crucial for making an informed decision that aligns with the buyer’s goals. This blog post will explore the key distinctions between asset purchase and share purchase transactions in British Columbia.

Nature of the Transaction: An asset transaction involves the acquisition or divestment of certain or all of a company’s assets, which may include equipment, inventory, real property, contracts, or lease agreements. Some liabilities may still transfer due to successor liability rules, but the seller retains ownership of some of the operating entity. On the other hand, a share purchase involves acquiring shares or ownership interests of the target company, resulting in ownership of the entire business, including assets, liabilities, and obligations. The buyer inherits all existing liabilities and risks associated with the business, even those not immediately apparent.

Liabilities and Risk: With an asset purchase, the buyer has more control over the liabilities they assume, leaving behind unwanted debts with the seller. However, certain liabilities may still transfer due to certain legislation. In a share purchase, the buyer assumes all existing liabilities and risks, including known and unknown ones, like pending lawsuits and tax obligations. If the business being purchased carries substantial potential for unknown liability claims, such as product liability, professional negligence, or environmental hazards, it may strongly indicate the necessity of opting for an asset purchase.

Contracts and Permits: In an asset purchase, the buyer usually negotiates or obtains new contracts, licenses, and permits to continue business operations, as existing agreements do not automatically transfer. On the other hand, in a share purchase, existing contracts and permits typically remain in force since the legal entity remains unchanged, avoiding the need for extensive renegotiations. This can be beneficial as in most cases it allows the buyer to continue business operations without the need for extensive renegotiations or obtaining new approvals.

Tax Implications: The choice between a share acquisition or asset acquisition becomes more complex due to the inherent conflict between the interests of the vendor and purchaser regarding income tax considerations. Typically, buyers prefer asset purchases as it provides a cost base for certain assets which can be depreciated. On the other hand, sellers prefer share purchases as it may result in preferential tax treatment, treating the sale proceeds as capital gains. Resolving this conflict becomes a matter of negotiation.

Due Diligence: Share purchase due diligence is broader and more encompassing, as it involves assessing the entire target company and assuming all its liabilities. On the other hand, asset purchase due diligence is more focused, as it centers on the specific assets to be acquired and allows for more control over the liabilities taken on by the purchaser.

Transfer of Employees: In an asset purchase, employment contracts do not automatically transfer to the buyer. While the asset purchase allows for a selective assembly of the workforce, certain obligations, such as length of service for severance pay, may still transfer. On the other hand, in a share purchase, the purchaser inherits the entire workforce and all severance obligations to employees, significantly impacting future plans for downsizing or integration.

Conveyancing Costs: Transferring shares is simpler than completing an asset transfer. Share transfers involve limited conveyance documents, while asset transfers require an extensive set of documents and potential third-party consents. Asset transfers may also incur significant registration costs and Property Transfer Tax. Share purchases may have to deal with contracts with third parties that contain restrictions on a change in control.

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What Are Usual Or Typical Conditions Precedent That a Purchaser Would Want in an Asset Purchase Agreement? 

What Are Usual Or Typical Conditions Precedent That a Purchaser Would Want in a Share Purchase Agreement?

 

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Understanding the Usual Terms for a Letter of Intent in British Columbia Business Purchase

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Introduction:

A letter of intent (LOI) is a valuable tool for parties seeking to assess their initial agreement on significant business terms before diving into formal purchase and sale negotiations. Acting as “term sheets,” a LOI streamlines the creation of final binding agreements.

Common LOI Terms

Parties: Clearly identify the involved parties accurately, providing their full legal names and addresses, ensuring the document’s legality and a strong foundation for negotiations. Additionally, the LOI should identify any rights that are assignable to a third party.

Purchase Price: Outline the purchase price, either as a fixed figure or within a negotiable range, along with payment method and timing details. Additionally, the sellers may often require purchasers to make a deposit towards the purchase price.

Assets and Liabilities: Clearly specify the assets and liabilities to be included in the purchase to avoid any misunderstandings during negotiations.

Due Diligence: Grant the buyer the right to conduct due diligence on the business to ensure transparency and assess viability.

Exclusivity: Consider an exclusivity clause to commit both parties to negotiate exclusively during the specified period.

Important Dates: To ensure a smooth and efficient transaction, it is advisable to establish a well-defined timeline that outlines key dates for signing the purchase agreement, target closing date, and other critical milestones.

 

Non-Solicitation: The seller will aim to incorporate a binding clause in the letter of intent, preventing the buyer from soliciting or recruiting the seller’s employees if the transaction does not proceed. On the other hand, the buyer will seek to restrict the non-solicitation provision to enable hiring the seller’s employees through general job postings.

Confidentiality: Include a confidentiality clause to safeguard proprietary information exchanged during negotiations. Additionally, the confidentiality prevents employees from becoming preoccupied with the ramifications of the sale and maintains their loyalty.

Binding or Non-Binding Nature: Explicitly state whether any part of the LOI is binding on the parties.

Termination: Address conditions for termination, such as mutual agreement or failure to reach a definitive agreement.

Conclusion

The LOI sets the stage for negotiations when purchasing a business in British Columbia. By outlining key terms and conditions, buyers and sellers establish a framework for discussions and ensure a smooth and transparent transaction process.

 

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What are standard conditions that a Purchaser of a vacant residential lot may want in a contract where they intend to build a home?

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This article will explore the conditions that a Purchaser may want to consider when buying a vacant residential lot in British Columbia.

  1. Due Diligence Period: One of the first conditions that should be included in the purchase contract is a broad due diligence period. This allows the Purchaser to conduct thorough investigations into the property before finalizing the purchase. The Purchaser may look into the implications of the Speculation and Vacancy Tax if they plan on leaving the lot vacant for a period of time prior to building. Another consideration is to assess whether the transaction will be subject to the Goods and Services Tax (GST). Further, the Purchaser may want to determine whether the property is subject to a Heritage Designation, or archaeological site. It may be prudent to conduct environmental and engineering assessments of the property prior to purchasing it. A Purchaser may want to consult with the City or Municipality to determine the size or siting of a future residence intended for the property. The Purchaser may want to consult with Geotechnical engineers on potential construction issues and soil testing. Lastly, a Purchaser may want to inquire about available utility services, such as sewer, water, hydro and gas.
  2. Zoning and Land Use: Verifying the zoning regulations and land use designation is necessary to ensure you can build your dream home. The Purchaser must ensure that the lot is zoned appropriately for residential use and that it aligns with their building plans. Additionally, checking for any building restrictions or design guidelines imposed by local authorities or homeowner’s association helps protect the Purchaser’s interests.
  3. Buyer Financing: Including a financing clause in the contract allows the Purchaser to withdraw if they are unable to obtain satisfactory mortgage financing within a specified timeframe. This condition is essential as it ensures that the Purchaser is not obligated to proceed with the purchase of the home if their financing falls through.
  4. Review of Title: This condition allows the Purchaser to perform a review of the land title to address the potential encumbrances on the land. These could include covenants, liens, easements, and statutory building schemes. A thorough review of the title is essential to ensure that the property meets the Purchaser’s needs.

It is critical to make sure that you understand any restrictions on the zoning of your property, as well as the property itself to ensure that you don’t lose thousands, or end up in a lawsuit for demolishing a heritage-designated and protected home. A little bit of effort can make all the difference. Call Heath Law if you’re purchasing a residential property lot on Vancouver Island.

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A Seller’s Guide: Completing Real Estate Transactions in Nanaimo

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Completing a real estate transaction as a Seller in Nanaimo involves various steps and considerations. The Buyer’s lawyer prepares almost all of the documents in a real estate transaction. The Seller’s lawyer will review the agreement of purchase and sale as well as the remainder of the transaction documents to ensure the Seller’s interests are protected. This article will provide a concise guide outlining the standard procedures after there is a contract of purchase in place and the conditions have been satisfied.

  1. Deposit: Once the conditions have been satisfied, the Buyer will provide the remaining deposit required under the purchase contract, if any. The deposit is typically held in trust by the Realtors until completion.  
  2. Document Execution: The Buyer’s lawyer will prepare and forward to the Seller’s lawyer a set of documents that must be signed by the Seller. Once signed, the documents are returned to the Buyer’s lawyer. The Seller’s lawyer must provide the Buyer’s lawyer with an undertaking to clear from the title any financial charges or encumbrances, such as a mortgage or lien.
  3. Completion: The funds provided by the Buyer are first used to pay out the Seller’s existing mortgage, outstanding taxes, and other encumbrances on title that must be cleared. Once the Seller’s lawyer completes their undertakings, the remaining funds are transferred to the Seller. The Realtor’s commission is usually paid by the Buyers and deducted from the monies due to the Seller.
  4. Possession: The date of possession is often the day after completion. The Realtors exchange keys, transferring possession to the Buyer.

Discharging Mortgage: Once the existing mortgage has been paid out, the Mortgage Lender will either file a Discharge of Mortgage with the Land Titles Office or forward the Seller’s lawyer a signed Discharge of Mortgage to be filed with the Land Titles Office.

Did you know: Sellers are as at-risk of being taken advantage of as home buyers? Don’t be left with costs that should be incurred by the purchaser or lose a good deal because you didn’t have a lawyer experienced in local real estate backing you. Contact Heath Law today.

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The Advantages and Disadvantages of Arbitration Clauses

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Introduction:

 

Arbitration has become a popular alternative to court proceedings for resolving disputes. It offers a range of benefits, including privacy, informality, and efficiency, making it an attractive option for many businesses. However, like any legal process, it also has its downsides. This article will explore the advantages and disadvantages of arbitration clauses to help you make an informed decision when choosing this method for dispute resolution.

 

Advantages

 

Privacy and Confidentiality:

One of the main reasons for the inclusion of an arbitration clause in contracts is the ability to keep the proceedings private. Unlike court proceedings, where documents are public and hearings are open, arbitration takes place behind closed doors, shielding the parties from public scrutiny. This confidentiality enables the parties to argue their case without fear of reputational damage, which can be critical for maintaining a positive business image.

 

Informality and Speed:

Arbitration offers a more informal process compared to court proceedings. The rules of procedure and evidence before an arbitrator are more relaxed, providing a less rigid and intimidating atmosphere. Additionally, arbitration is typically much faster, allowing cases to be resolved in a matter of months, whereas court cases can drag on for years due to backlogs in the legal system.

 

Specialized Decision-Maker:

In arbitration, parties have the advantage of selecting an arbitrator with specialized knowledge and expertise in the area of law relevant to their case. This is in contrast to the court system, where judges are assigned randomly and may lack experience in specific legal fields. The ability to choose a knowledgeable decision-maker can lead to more informed and fair judgments.

 

Cost Flexibility:

Arbitration offers flexibility in cost allocation. Parties can negotiate who pays for the arbitrator’s fees, the venue, and the legal fees of the winning party. Moreover, by avoiding complex legal procedures like discovery, which occurs in court, parties can limit their overall costs. However, it is worth noting that the availability of qualified arbitrators on Vancouver Island and the potential high costs may be a drawback.

 

Disadvantages:

 

Limited Discovery:

One significant drawback of arbitration is the limited discovery process. Unlike court proceedings, arbitration may not allow for an extensive exchange of information about witnesses and evidence before a trial. This can make it challenging to gather sufficient evidence to prove a party’s position.

 

Finality of Decisions:

Perhaps the most significant downside of arbitration is the limited avenue for appeal. Once an arbitrator renders a decision, it is usually final and binding on both parties. In contrast, court decisions can often be appealed to higher courts. This finality can leave parties with little recourse if they believe the arbitrator made a mistake.

 

Conclusion:

 

Arbitration offers several advantages that can be highly beneficial in resolving disputes. It provides privacy, efficiency, and the ability to choose a specialized decision-maker. However, it also comes with its drawbacks, such as limited discovery and the finality of decisions. Before including arbitration clauses in contracts, it is crucial for parties to carefully consider their specific needs and preferences, seeking legal advice to ensure the chosen method aligns with their goals.

 

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A Buyer’s Guide: Completing Real Estate Transactions in Nanaimo.

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Completing a real estate transaction as a Buyer can be a complex process. Once the Buyer and Seller have a contract of purchase and sale in place and the conditions have been satisfied, the Buyer’s lawyer will conduct a land title search and review any charges on the title. The Buyer’s lawyer will also prepare the conveyancing documents, and coordinate signatures, registration and money transfers.

  1. Completing the Purchase of Sale: The Buyer’s lawyer prepares almost all of the documents in a real estate transaction in Nanaimo. These include conveyancing documents, mortgage documents (if any), land title searches, and a statement of adjustments. Any financial charges on title are to be discharged by the Seller.
  2. Prior to Closing: The Buyer’s lawyer meets with the Buyer prior to closing to review the entire transaction and sign the documents. The transfer documents are sent to the Seller’s lawyer to be executed by the Seller. The documents are then returned to the Buyer’s lawyer. Once the Buyer’s lawyer has received the down payment from the Buyer, and the Buyer has satisfied all conditions of the mortgage lender, the lawyer registers the land title transfer document, along with the mortgage document at the Land Title Office.
  3. Closing: Once the documents are registered and the Buyer’s lawyer receives the mortgage proceeds, then the down payment and mortgage proceeds are paid to the Seller’s lawyer. Often, the Buyer takes possession the next day after closing.
  4. Post-Closing: The Buyer’s lawyer will provide a final reporting letter to the Buyer once the state of title certificate is received from the Land Title Office and will also provide the state of title certificate to the Mortgagee.

Don’t let the above steps in the real estate process fool you with their seeming simplicity. These four steps each have their own complexity in the home buying and selling process and missing the wrong step can cost you thousands of dollars, or even the sale of your desired property. Be certain you’ve done everything right. Contact an experienced real estate lawyer at Heath Law, in Nanaimo BC.

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What are standard conditions that a Purchaser of residential real estate may want in a contract for the purchase of a home?

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Purchasing a home in British Columbia is an exciting and significant milestone. However, the process can be intricate, and it is crucial for Purchasers to include specific standard conditions in their purchase contracts to protect their interests and ensure a smooth transaction. The following are examples of conditions:

  1. Buyer Financing: Including a financing clause in the contract allows the Purchaser to withdraw if they are unable to obtain satisfactory mortgage financing within a specified timeframe. This condition is essential as it ensures that the Purchaser is not obligated to proceed with the purchase of the home if their financing falls through.
  2. Property Inspection: Conducting a thorough inspection of the property is crucial to identify any potential issues or defects. It may be desirable to include a broad inspection clause, which allows for inspections at the Purchaser’s discretion. This will allow for a home inspection and can include a subsurface oil tank inspection if necessary.
  3. Insurance: Including an insurance clause is essential to protecting the Purchaser’s interests. This clause allows the Purchaser to exit the contract if they are unable to obtain satisfactory property, fire, and liability insurance.
  4. Review of Title: This condition allows the Purchaser to perform a review of land title to address the potential encumbrances on the land. These could include covenants, liens, easements, and statutory building schemes. A thorough review of the title is essential to ensure that the property meets the Purchaser’s needs.
  5. Strata Documents: In the case that the property being purchased is part of a strata, the Purchaser can include a clause requesting to see the strata bylaws and rules, as well as the minutes from prior annual general meetings and a depreciation report.
  6. Property Disclosure Statement: A property disclosure statement can provide the Purchaser with valuable insight into the property. The statement may disclose defects such as insect infestation, asbestos insulation or moisture problems. It is often desirable for the Purchaser to request a copy of a property disclosure statement.
  7. Clarifying Fixtures vs. Chattels: The law surrounding what constitutes a fixture and what constitutes a chattel is complex. It is prudent for the Purchaser to specify what is included in the offer price in the purchase contract. This may be a hot tub or a large mirror fixed to the wall.
  8. Lawyer’s Approval: Where a Purchaser has reservations about the form of the contract, the Purchaser could insist on a condition that the contract be subject to their lawyer’s approval within a specific period of time.

 Remember however that the above list is just a few examples of standard conditions often included in a real estate contract. These are not guaranteed to be present, nor are they the only clauses that may be desirable for your specific home purchase. To make sure you’re not missing out on—or trapped by—a clause that could cost you thousands, contact Heath Law and speak to an experienced real estate lawyer today!

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Why should I meet with a lawyer before signing a residential real estate contract?

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Signing a residential real estate contract is a significant part of buying or selling a property, as it governs the legal obligations of the Buyer and Seller. Consulting a lawyer before signing a real estate contract is recommended for the following reasons:

  1. Legally Binding Document: A lawyer will review the contract with you to ensure that you understand that you are entering into a legally binding financial obligation.
  2. Understanding Complex Terminology: A lawyer can simplify complex legal jargon, ensuring you fully comprehend the contract’s terms and the implications they have for you.
  3. Inserting Conditions: If you are a Purchaser, a lawyer can assist you in determining what conditions or “subject to” provisions need to be inserted. Example conditions include financing, inspection, or the sale of your own home.
  4. Understanding your Risks: If you are a Seller, the lawyer can explain under what circumstances a Buyer can terminate their obligations under the contract.
  5. Reviewing Title and Identifying Problems: If you are a Buyer, the lawyer can assist you with understanding what encumbrances or charges will remain on the title after your purchase and whether these affect the marketability of the property.
  6. Understanding the Location: Many Buyers may be new to the area and a lawyer could advise on the neighbourhood and what future development may take place in adjoining properties.
  7. Peace of Mind: Finally, our lawyers provide peace of mind by protecting your interests and ensuring the contract is fair and enforceable.

All too often, people underestimate the complexity of real estate contracts and leave themselves at risk. Heath Law has experienced lawyers that can help you avoid the pitfalls of a shady real estate deal or incorrectly filed documentation. Contact us today for any real estate purchases you’re considering.

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What are standard conditions that a Purchaser of residential real estate may want in a contract for the purchase of a home?

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Major Changes to Employer Obligations Under the Workers Compensation Act – Effective November. 24, 2022

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Our Corporate and Commercial clients should take notice that Bill 41 – 2022: Workers Compensation Amendment Act (No. 2), 2022, received Royal Assent on November 24, 2022 (the “Amendments”).

These Amendments introduce important changes to BC’s Workers Compensation Act (the “WCA”). This has many implications for how employers are expected to deal with injured workers. Employers should be up to date on these changes since they have a significant effect on administrative decisions, cost calculations, and employee relations policies.

First, employees who have been employed for 12 continuous months before their injury and who were injured at work are entitled to reinstatement in a suitable role. This applies to employees who sustained their injuries within two years of the amendments coming into force. Employers now have an obligation to accommodate such injured employees to the point of undue hardship. This standard is measured by the specific circumstances of the case but financial detriment and workplace disruption can be taken into account. An employer who terminates an injured employee within 6 months of returning to work can be deemed in breach of the new obligations unless the employer can show that the termination is for other legitimate reasons. Businesses who employ fewer than 20 employees are exempt. Additionally, if an employee has not returned to work two years after being injured, the employer is then released from their obligation to maintain employment.

WorkSafeBC is in charge of resolving disputes between employers and employees and each is entitled to make complaints about the other. As such, both employers and employees have a duty to cooperate in order to find suitable work for an injured employee.

Under the Amendments, employers face additional penalties if they attempt to prevent employees from reporting injuries or claim compensation. WorkSafeBC will investigate and impose fines if an employer is in breach of the obligations. To facilitate these investigations the Amendments also established a Fair Practices Commissioner who reports to WorkSafeBC, makes recommendations, and creates an annual report.

Since many of these amendments result in increased administrative costs, employers would be prudent to update their workplace injury policies in response to these changes. Proactivity will also reduce the likelihood of being found in breach of the new obligations.

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7 Reasons to Update Your Will and Related Estate Planning Documents

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7 Reasons to Update Your Will and Related Estate Planning Documents

End of life and incapacity planning are among the most important tasks an individual can complete to ensure that their assets, personal care, and health care are handled appropriately. While it’s not pleasant to think about one’s own death or potential incapacity due to sickness or injury, taking the steps to ensure that your estate planning documents reflect your wishes is well worth the effort.

1. You haven’t drafted a Will: It’s integral that you have a Will so that you can ensure your assets are given to the beneficiaries of your choosing. Otherwise, the intestacy provisions of the Wills Estates and Succession Act of British Columbia will dictate who ends up with an inheritance and who doesn’t. Beloved friends or family members may inadvertently be excluded.

2. You receive a problematic or terminal medical diagnosis: To ensure that you receive satisfactory financial and legal management during periods when you don’t have legal capacity, as an example, falling into a coma, it would be prudent to execute an Enduring Power of Attorney. This document appoints an individual of your choosing to manage your legal and financial affairs. A Power of Attorney does not permit someone to make health care decisions on your behalf – this requires the appointment of a Representative under a Representation Agreement.

3. You have specific instructions you want healthcare providers to follow: If you have specific preferences regarding the scope of medical treatment provided to you when you’re incapacitated, you should execute an Advance Directive. This document can cover preferences such as “do not resuscitate” or “do not provide blood transfusions”.

4. A beneficiary under your Will has become disabled: Unfortunately, if people with disabilities obtain inheritances, their government benefits could be discontinued. To avoid this situation, a will-maker needs to ensure their Will provides fully discretionary trusts for any disabled beneficiaries.

5. You marry, enter a marriage-like relationship or get divorced: While the intestacy provisions of the Wills Estates and Succession Act ensure spouses are provided for in some fashion in the event that there is no Will, the preferable option is to have a Will that fully reflects your wishes. Alternatively, if you divorce or separate from a partner, you need to update your Will. You also need to closely review who benefits from accounts such as group benefits or insurance plans, as the current beneficiary might be your ex.

6. Your financial position significantly changes: If you come into a substantial amount of money by inheritance or other means, you’ll likely want to revise your estate plan to allocate the assets differently. If you do not, a large portion of the funds could fall into the category of residue, and may not go to an intended beneficiary. On the other hand, decreases in income that can come with retirement or losing employment may create a need to revise your Will. If you sell or dispose of assets specifically referenced in your Will to fund your financial needs, the beneficiaries will no longer obtain those gifts. It is prudent to plan ahead and revise your Will as your financial circumstances change.

7. New Grandchildren: If your current Will names specific grandchildren, only those named grandchildren will obtain a share of your Estate. You will need to update your Will to include any new grandchildren.

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