As a rule, the buyer consults his notary before making an offer to purchase. With a purchase price in mind and a firm desire to protect himself. Mr. John Lapierre
The offer to purchase is well known in the context of the acquisition of houses, secondary residences, or condominiums. You should know that it is also at the heart of any commercial or corporate transaction. Following the letter of intent Which provides a framework for the expectations of the parties. By providing the main parameters of the contemplated transaction. The offer to purchase will allow the buyer to carry out due diligence to conclude the transaction. The offer is in a way the keystone of the process. What are the fundamental elements of the offer to purchase. And what are the traps that lie in wait for the buyer?
❚ SOME FUNDAMENTAL STATEMENTS
❚ There are two types of takeover bids: the sale of shares. And the sale of assets (formerly known as a “goodwill sale”).
❚ Seller generally wishes to sell his shares to benefit from the capital gains exemption of $750,000 (a lifetime maximum). It should be noted that this exemption is not automatic. Several tax conditions must be met to benefit from it.
❚ For his part, the buyer rather wishes to buy the assets in order to limit his responsibility for the tax. And legal history of the company.
❚ The seller always has an interest in disclosing all relevant information about his company. In order to avoid possible claims or lawsuits for fraud.
❚ BUYER PROTECTION MECHANISMS
Due diligence remains an essential protection step for any buyer. You must check, among other things: employment contracts. Isurance contracts, leases, the company’s tax history. Previous payments of GST, QST, CSST, and source deductions (DAS). The seniority of employees concerning the Act respecting labor standards. As well as any other element necessary to minimize unforeseen events.
The legal notary, through his drafting skills, among other things. Is the adviser best placed to protect the buyer in this process. As a general rule, the buyer consults his notary before making an offer to purchase. With a purchase price in mind and a firm desire to protect himself. In the past, the legislator had provided strict rules on the “bulk sale” type of transaction,
TAX CONDITIONS TO BENEFIT FROM THE CAPITAL GAINS EXEMPTION (SPA)
❚ Be the owner of the shares of the company for at least 2 years
❚ Within the 2 years preceding the transaction. More than 50% of the fair market value (FMV) of the assets must have been used. In the active operation of the business with the help of M&A advisory.
❚ At the time of the transaction. 90% of the FMV of the assets must be used in the active operation of the business
The legislator quickly realized that these rules. Had the effect of creating serious constraints on the sale of businesses in Quebec. Consequently, on June 13, 2002, the National Assembly adopted Bill 50 (2002, chapter 19). Entitled An Act to amend the Civil Code and other legislative provisions.
Among the amendments adopted is the repeal of articles 1764 and 1767 to 1778 of the Civil Code of Québec.
Although today the rules are more flexible. It is still necessary to be very vigilant in the acquisition of a company because the accumulation of civil. Tax, and legal obligations can, for an uninformed buyer. Cause a lot of trouble. several weeks, months. And even years after the transaction. Your notary is a leading advisor in the purchase of a business. Consult your specialist or M&A advisor.
“The offer to purchase is the real cornerstone of the transaction. It represents both a sales contract and a purchase contract. It creates binding obligations between the parties.
WHAT THE OFFER SHOULD INCLUDE:
❚ Purpose of the transaction (sale of shares or sale of assets)
❚ Purchase price (with a breakdown of the purchase price for the sale of assets to meet tax obligations)
❚ Terms of payment (balance of sale price, down payment, interest rate, penalties, prepayment)
❚ Conditions (due diligence, financing, inspection, zoning, permits)
❚ A commitment of non-competition
❚ A commitment not to solicit customers
❚ A commitment not to solicit staff
❚ A non-disclosure
clause ❚ A clause relating to intellectual property
❚ Specific conditions (food permit, liquor permit, environmental permits, authorizations)