Selling a business in Quebec: how can a business lawyer be useful?
What is the legal process when selling a business in Quebec?
For several legal reasons, selling a business often requires the involvement of a business lawyer. A commercial transaction is more or less a lengthy process that can often times include a lot of “red tape”.
By virtue of its legal, transactional and financial nature, a commercial transaction is often liable to the subject of a commercial dispute. What role can a business lawyer play to alleviate the pain of any commercial or business transaction?
What tasks can he/she perform? How to decide which business lawyer to choose? There are so many questions… each requires an informed answer.
Selling a business: the two main methods explained by a business lawyer
The means through which a business can be sold include, but are not limited to: selling of the assets of a business and / or the selling of a companies stocks.
The sale of a company’s assets
We talk about asset sales when the owners of a business decide to sell some or all of the assets of that business. In Quebec, this type of sale requires the seller to assure the purchaser that the goods sold do not present any hidden defect.
According to the Civil Code of Quebec (article 1726), the seller is required to guarantee to the buyer that the goods and their accessories are, at the time of the sale, free from hidden defects which make them unfit for the use for which they are intended. intended or which diminish its usefulness so much that the buyer would not have bought it, or would not have given so high a price if he had known them.
He is, however, not bound to guarantee the hidden defect known to the purchaser nor the apparent defect; the defect is apparent which can be observed by a prudent and diligent buyer without having to resort to an expert.
But what if the two parties decide, by mutual agreement, to dispense with the establishment of this guarantee? A business lawyer can give you a well-informed answer to this question, but also to other tax and legal questions.
The sale of the company’s shares
The purchase or sale of shares in a company enshrines the transfer of ownership from the seller to the buyer. We must understand by “shares” the goods sold, which are distinguished from the assets (equipment, buildings…), of the company. Here, the application of the quality legal warranty poses a problem because of the intangible aspect of the actions.
This operating method of selling a business by shares – more than that of selling by assets – is somewhat very risky, given the countless cases of commercial litigation on which case law has had to rule. A property affected by a hidden defect can in no case constitute a reason for prosecution within the framework of the purchase of the shares of a company.
Either way, whether it’s selling a company’s assets or shares, there are several steps to follow.
The different stages in the business sale process with the help of a business lawyer
From the idea of selling to the conclusion of the sale, including the negotiation, no detail should be overlooked in this long, multi-step process – the main ones of which are listed below.
Preparing for sale
Before any negotiation, it will be necessary to arouse the interest of potential buyers. Therefore, it would be a question here of making a complete diagnosis of the company, including the evaluation of its value on the market, of its sale price, of its market share.
The signing of a confidentiality clause
When a business for sale finds a potential buyer and even before negotiations, the latter is bound (like the seller, in certain cases), to confidentiality (materialized by a clause). Leaking information about the intention to sell can indeed have serious consequences for the owner.
When he is interested in the sale proposal made to him, the potential buyer enters into negotiations with the seller. Negotiations take shape gradually, if necessary, before arriving at some sensitive questions concerning the company – including prices, terms of sale.
Letter of Intent to Purchase / Offer to Purchase
Through this document that is not representative of a formal commitment that is the letter of intent, the prospective purchaser affirms his intention to buy the business from the “ selling ” party. . The means of purchase (assets or shares), prices, terms of acquisitions, issuance of a due diligence reserve, etc. are included in this letter. At this stage, the letter of intent takes the form of an offer to purchase which is formal in that it projects a contract binding the two parties.
The business to be sold (or to be purchased) must be free from defects and this is where due diligence comes in. Thus, all the critical details of the business will be combed through to verify their compliance with the information provided upstream by the selling contractor. It will also be a question of ensuring that the company is up to date on the financial, legal, tax plans …
The conclusion of the sale of the company
The conclusion of the sale and the purchase leads to the signing of the contract and puts an end to this long process. This sale/purchase contract is very delicate and must be drawn up as expertly as possible. It should ideally include, among others:
- Guarantees on the good condition of the company;
- The sale price adjustment clauses;
- The protection mechanism, if applicable;
- Non-competition clauses, if applicable;
What are the main tasks and roles of a business lawyer in the business sale process?
Throughout most of the aforementioned sales process, the role of a business lawyer is inescapable and, to some extent, ubiquitous.
The latter is above all an expert in mergers and acquisitions of companies. As an external advisor to the company and spared from any conflict of interest, he defends without ulterior motive (unlike the usual lawyer, internal to the company), the owner or the buyer of the company to sell. So, whether you are an owner planning to sell your business or a future business owner planning to acquire one, Sabbagh & Associé law firm can support you throughout the process.
NOTE: This article does not constitute legal advice from or legal opinion. It is only used to inform readers about certain aspects of business law.