Have you identified an existing business and want to make the leap into ownership of said business? We can’t stress this enough – do your due diligence! I can almost hear the commentary now… but the items are so cute and/or the current owner/seller is so nice, why would I need to check into a business further than what I’m being told? Lots of reasons! We will cover those reasons as well as a rundown of what “due diligence” entails in this blog post.
What is due diligence? In short, due diligence may include, but not limited to, a check up on the financial, regulatory, compliance and/or interactive health of the business. This may include searching into Canada Revenue Agency records, Provincial Sale Tax records, Employment Standard records, Liquor Licencing/Health Department records, Municipality/Fire Department records, to name a few.
Due diligence varies depending on what you are purchasing. Due diligence is a moving target. The type of due diligence that may be completed depends on the business. If you are purchasing a restaurant, for example, your due diligence may include inquiries with Liquor Licencing and the local health authority to ensure the proper permits and authorizations have been acquired and that there are no violations that you should be aware of.
Due diligence that can be completed on any business purchase. The old saying goes something like, “the only sure things in life are death and taxes.” Yup, I’ll agree with that statement, and it ties into my point… taxes. Whether the tax laws are being followed (or not), taxes are something every business is required to comply with. Inquiries with the Canada Revenue Agency (“CRA”) and with the Province regarding Provincial Sales Tax (“PST”) may be completed to ensure the business is up to date with their tax filings. Nothing worse than finding out the business you just purchased owes back taxes, leaving you on the hook to pay them.
The business owns real estate or has an active lease. I could go on all day about due diligence into real estate holdings, but I’ll spare you and hit the high points. If the business owns real estate, a title search, property tax search, property inspection (structural and/or electrical), and now that the Land Owner Transparency Register is active, a search into whether the company owning the business has complied with the new LOTA rules may be conducted. If there is an active copy of a lease, obtaining a copy of said lease and reviewing the terms (renewal/covenants/termination) may be conducted.
Why should I do due diligence? There are a lot of reasons why due diligence may be completed. Business ownership should be fun and exciting and something you are passionate about, but it should also be financially viable. No one wants to buy into a business and have it fail due to poor management of the financials, or constant lawsuits, or finding out the rules weren’t followed and its being shut down until brought back into compliance. I’m a firm believer that money shouldn’t be your main motivator to do something, but there is no denying that money does play a huge role in business.
The take away. Ultimately, it’s the purchaser’s choice how much (or little) due diligence they want to do, but know the option is there. Due diligence is a service we offer to all of our clients looking to acquire a business and we will go through the options in detail. If you are considering a business purchase, best to reach out to a lawyer early in the process so that you know all of your options and procedures so you can make informed decisions.
If you have any questions regarding the above or if you would like to discuss your business purchase/acquisition, please contact us at (778) 940-3768. We would be happy to help!
Author: Tracy Lerfold, Designated Paralegal to Jennette Vopicka and Danielle (Dani) Brito
This information is general in nature only and written by a Designated Paralegal under the direct supervision of a lawyer. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (778) 940-3768 or any of our lawyers practicing in the area of corporate/commercial and real estate at the following:
Jennette Vopicka: [email protected]
Danielle (Dani) Brito: [email protected]