Due Diligence When Purchasing an Edmonton Business

1. Due Diligence When Purchasing an Edmonton Business

2. Buying an existing business can be an attractive prospect for an investor or someone looking to start or expand operations. However, it is one of the most complex and significant purchases. While it can represent an exciting opportunity, there is also a real need to conduct thorough due diligence before closing a sale. Doing so can help mitigate risks and let you make a fully informed purchase. Working with corporate lawyers in Edmonton may also help you navigate this process. Let’s review some key aspects to know and common errors to avoid. Understanding Asset vs. Share Purchases

3. Before beginning a purchase, potential buyers should clearly understand the different types of business purchases. You may either purchase shares or assets. In a share purchase, the buyer acquires 100% of a company’s shares from its existing stockholders. Buyers use a purchase agreement to execute the acquisition. In a share purchase, you acquire the entire company as a whole. This includes all its assets and outstanding liabilities, both known and unknown.

4. In contrast, asset purchases allow buyers to acquire only the specific assets of a business they want. You take on only the liabilities related to the assets you purchase, making undeclared issues less of a concern. Asset purchases can offer more risk protection to buyers. However, you may need to renegotiate or restart contracts created initially by the seller. Asset purchases may also include more complex tax considerations. Reviewing the Company’s Financials

5. The current status of accounts payable and receivable • Current assets • Current inventory • Existing debt load • Existing contracts and agreements, and more. Understanding what liabilities you may inherit as the new owner is essential. Public record explorations, such as searching the personal property registry, can assist here. Such a search can reveal any registered interests against the company’s assets by existing creditors. Bankruptcy records indicate whether the business has ever declared bankruptcy. It is also important to check court records to ensure there is no active litigation.

6. Handling Employee Transitions Purchasing a business means deciding the best course of action with existing employees. Transitioning employees to a new structure can be a challenge. Part of due diligence during the pre-purchase period may include exploring current compensation structures and benefits packages. You may also review productivity levels, evaluate team cohesion, and assess skill levels to determine if current employees meet the standards of new ownership.

7. Sometimes, keeping existing employees on board may be advisable. However, remember that you may be a “Successor Employer,” which obligates you to recognize service time accrued under the previous ownership. Consequently, you may be responsible for paying severance in the future based on the employee’s full length of service, not only the time served under your management. Legal guidance and carefully crafted employment agreements can help provide support to inform your decisions in this area. Potential Pitfalls to Avoid Buyers should beware of the potential mistakes that can negatively impact the sale process or lead to undesirable outcomes. What are some of the most common mistakes individuals make when approaching a business acquisition?

8. Failing to be as thorough as possible on your due diligence, leading to oversights that could include previously unknown financial liabilities; • Missing out on engaging professional support to vet the business and its current status; • Viewing the business as a machine instead of a human endeavor leads to conflicts and complexities with personnel during the ownership transition; • Failure to plan for post-purchase steps; • Choosing the wrong type of purchase structure based on incorrect assumptions. Corporate lawyers in Edmonton can help provide support to guide you through this process and help you avoid common mistakes.

9. Navigate Business Purchases with Experienced Legal Support Purchasing a business can be an exciting opportunity that leads to potential future value. However, it can also be a risky venture. Legal guidance throughout the process offers protection to buyers and a means to detect potential issues before it’s too late. With a small business lawyer in Edmonton from Lypkie Henderson, you can find professional, experienced support in handling the due diligence process. Chat with us today to learn more.