Before buying an existing business in Calgary, review preliminary agreements, assess the purchase structure, investigate the business, negotiate the purchase agreement, obtain necessary consents, and prepare the closing documents.
An established business may offer customers, trained employees, and proven systems. However, its contracts, debts, employment obligations, and operational history also need careful examination. Understanding what you are acquiring—and which obligations may follow—helps you make an informed decision before committing.
1. Review Preliminary Agreements Before Signing
Acquisitions often begin with a confidentiality agreement, letter of intent, or offer outlining the proposed transaction. These documents may address the purchase price, assets or shares being acquired, due diligence deadlines, and conditions for proceeding.
They may also include exclusivity provisions—a period during which the seller agrees not to negotiate with other buyers.
Do not assume a preliminary document is entirely non-binding. Confidentiality, exclusivity, deposits, and other provisions may create enforceable obligations even when the purchase itself remains subject to negotiation. Review these terms before signing or paying a deposit.
2. Assess Whether to Buy Shares or Assets
The proposed purchase structure affects the documents, investigations, and approvals required. Consider it early, while allowing room to reconsider as due diligence progresses.
In a share purchase, the buyer acquires shares in the corporation operating the business. The corporation generally retains its assets, contracts, and liabilities, making its history particularly important.
In an asset purchase, the buyer acquires specified assets, such as equipment, inventory, goodwill, and intellectual property. The agreement identifies included assets and liabilities the buyer agrees to assume. However, that allocation does not necessarily eliminate obligations arising under applicable law.
Neither structure is automatically better. Legal risks, tax consequences, financing, and business objectives all matter. For a closer comparison, read Dimic Law’s guide to share purchases versus asset purchases.
3. Investigate the Business Through Due Diligence
Due diligence means checking the business’s records and potential risks before completing the purchase. The scope depends on the industry and transaction, but commonly includes:
- Corporate records: Confirm ownership, corporate status, and the seller’s authority to complete the sale.
- Contracts and debts: Examine customer and supplier agreements, financing, outstanding obligations, and security interests—claims over assets used to secure obligations.
- Employment: Review employment agreements, compensation, accrued entitlements, and potential claims.
- Intellectual property: Confirm ownership or appropriate rights to business names, trademarks, websites, software, and other essential assets.
- Property and compliance: Investigate leases, permits, licences, regulatory requirements, and disputes.
For Alberta businesses, corporate and Personal Property Registry searches may form part of the investigation. Searches should be considered alongside the underlying agreements and other records.
Coordinate legal, accounting, financial, and tax reviews so that the findings inform both the purchase decision and the agreement’s protections.
4. Negotiate the Purchase Agreement
The purchase agreement sets out what is being bought, how payment works, and each party’s responsibilities. Review:
- The purchase price, deposit, and payment arrangements.
- Included assets or shares, excluded assets, and assumed liabilities.
- Seller representations and warranties.
- Conditions that must be satisfied before closing.
- Indemnities, remedies, and limits on claims.
- Closing dates, required documents, and financial adjustments.
Representations and warranties are statements the seller makes about the business. For example, a seller might confirm that specified litigation has been disclosed. The agreement should address the consequences if that statement proves inaccurate.
Indemnities can allocate responsibility for specified losses, subject to negotiated limits, deadlines, and procedures. Closing adjustments account for agreed changes to the final amount payable, such as inventory or working capital adjustments.
Dimic Law’s business agreements services include drafting and reviewing commercial contracts.
5. Resolve Consent, Licensing, and Employee Requirements
Use the due diligence findings to identify what must happen before the buyer takes over.
A commercial lease may require landlord consent to an assignment or change of control. Customer and supplier contracts may contain similar requirements. Obtain necessary approvals rather than assuming business relationships will continue unchanged.
For example, buying a business’s equipment and goodwill does not itself give the buyer the right to occupy the seller’s leased premises. Address the lease arrangements early, with support from a lawyer who reviews commercial leases.
Check applicable Calgary municipal and Alberta provincial licensing requirements. Some licences require a new application or ownership notification; do not assume they transfer with the sale. Alberta’s business licensing guidance identifies ownership-change requirements for the licences it covers.
Confirm employee arrangements, responsibility for outstanding entitlements, and any continuing service obligations. These issues depend on the transaction and applicable employment law.
6. Prepare for Closing and Follow-Up Requirements
Closing involves delivering the required documents and funds and confirming that contractual conditions have been satisfied or properly waived. Depending on the transaction, this may include:
- Signing purchase, transfer, and closing documents.
- Obtaining corporate approvals and resolutions.
- Completing financing and lender requirements.
- Arranging agreed releases or discharges of security.
- Delivering assignments and third-party consents.
- Confirming payment adjustments and final amounts.
- Updating corporate records and applicable registrations.
Identify post-closing responsibilities as well, including transition assistance, outstanding filings, and deadlines for any remaining payments or obligations.
How a Business Purchase Lawyer Can Help
A business purchase lawyer in Calgary can assess legal due diligence findings, negotiate contractual protections, identify required consents, and coordinate closing documents.
Dimic Law’s mergers and acquisitions services assist buyers and sellers with business acquisitions and related agreements. Involving a lawyer early allows time to address concerns before they become binding commitments.
Get Legal Guidance Before Committing to a Business Purchase
Buying an established business involves more than agreeing on a price. Careful investigation, clear purchase terms, and coordinated closing preparations help you understand the business and the obligations involved.
Considering an acquisition?
Contact Dimic Law to discuss your proposed business purchase,
ideally before signing a letter of intent or committing to purchase terms.
