If you read that question and thought to yourself “what’s the difference”, then you need to keep reading.
Purchasing a business means that you are purchasing 100% of the shares of the company, which effectively transfers all of the company’s assets and liabilities to the purchaser. This includes keeping the corporate name that you purchase, its’ leases, employees, bank accounts, intellectual property, the list goes on.
Purchasing assets of a company means that an individual, or other entity, purchases individual assets of a company, but not actually purchasing the company itself. This can include specific equipment, vehicles, and even a business name, all of which needs to be described in detail.
In either circumstance, you need to ensure that you enter into the proper agreements for both. A Letter of Intent is used for both a share purchase and an asset purchase, but there are differences in each document, and it is always best to consult your lawyer before entering into any kind of agreement, and have them draft the Letter of Intent.
The Letter of Intent is just the starting point to the actual binding agreement, such as the Asset Purchase Agreement and Share Purchase Agreement. Each of these Agreements are very detailed and is the document that sets out all terms and conditions of the transaction, including setting out the terms in which either party could terminate the agreement.
Another important step in each of these transactions is the due diligence process. Searches will need to be conducted to ensure that the assets you are purchasing are in fact owned by the company, as well as making sure there are no encumbrances on those assets. For share purchases, an in-depth review of the corporation’s minute book will need to be completed, as well as searches to ensure there are no Judgment against the corporation which were not disclosed. These are just a few of the many due diligence steps that can be involved in any transaction.
Which ever acquisition you are proceeding with, as you can see from the above, it certainly is a complicated process and should never simply be a just a “handshake” deal.
Christine Allan, ILCO Law Clerk