Many Albertans acquire existing businesses to focus on after their retirement. However, buying a business is significantly more complicated than simply purchasing real estate.
One of the most crucial considerations is being facing responsibility for existing business liabilities after the purchase. Buyers can protect themselves by structuring the transaction thoroughly and conducting due diligence adequately before finalizing a business purchase.
Benefits of buying assets
A significant part of the process is the decision to purchase the entire business by buying the shares. Alternatively, the buyer can decide only to purchase specific assets.
Choosing assets like vehicles, buildings, inventory and equipment might be one way to avoid liabilities. Buying only the most attractive assets has several benefits for the purchaser.
Another significant advantage that makes an asset purchase even more appealing is the tax benefit. The purchaser can deduct the purchase price from the income as depreciation. Deductions can occur over several years.
Unless reaching a special agreement, a purchaser who buys only assets will not be liable for the obligations, debts or liabilities of the seller. Agreements might include a reduced purchase price for taking on certain liabilities. Such an offer deserves careful consideration and requires due diligence.
Potential liabilities when buying shares
Purchasing most or all of the business stock lets the purchaser take the seller’s place and continue business operations as before. The company’s obligations and debts, known or unknown to the purchaser, will become the new owner’s responsibility, as will business loans, money owed to contractors and employees, and more. An example of a liability that could arise several years after purchasing the business includes potential legal claims filed by workers who allege the previous owner’s negligence led to work-related injuries.
One more precaution to take if the shares are purchased is getting the seller to sign an indemnity agreement that makes the seller responsible for unforeseen liabilities that could arise in the years following the purchase.