Paul Simon once sang that there are 50 ways to leave your lover. Lawyers, it seems, are a little less creative: basically there are only two ways to sell a business.
In fact, you might think there is really just one way to buy or sell a business: one side makes an offer, the other side agrees, then it’s slip out the back, jack, because you’ve got a deal.
Things are a little more involved from a legal perspective. The main question that would interest a lawyer is whether the parties want to negotiate an asset deal or a share deal. This isn’t just mumbo jumbo, either. Generally speaking, a purchaser will jockey to structure the transaction as an asset deal, while the vendor will hope to negotiate a share sale. You definitely need to understand the advantages and disadvantages of each option.
An asset deal involves the purchase or sale of a piece of the business, and the parties to the transaction are the purchasers and the company. A share deal usually involves the sale of 100% of the company’s shares, and the negotiating parties are the purchaser and the shareholders.
Tax is perhaps the most important factor that determines which type of deal the parties choose, lawyers say.
Typically, a purchaser will seek to acquire individual assets because that gives the buyer the ability to pin a concrete value on those assets. This value can be used as the starting point for depreciation expenses going forward, says Steven Goldman of Goldman Hine LLP in Toronto.
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