Buying a Business
One of the primary goals of most businesses is growth. Of course, other common goals include marketplace innovation, creative expression, and community improvement.
Common ways to grow your business (aside from simple market expansion) include making a strategic acquisition or merging with another business. An acquisition is when you buy another business and end up controlling it. A merger is when you integrate your business with another and share control of the combined businesses with the other owners. Mergers and Acquisitions are both ways to acquire new business opportunities.
Advantages of Mergers and Acquisitions
There are many good reasons for growing your business through an acquisition or merger. These include:
- Obtaining quality staff or additional skills, knowledge of your industry or sector, and other business intelligence.
- Accessing funds or valuable assets for new development.
- Increase overall business performance.
- Accessing a wider customer base and increasing your market share.
- Diversification of your business’s products, services, and long-term prospects.
- Reducing your costs and overheads through shared marketing budgets, increased purchasing power, and lower costs.
- Reduced competition.
- Organic business grown.
Business entrepreneurs tend to like the thrill of the jump. Good opportunities are often seen as fleeting. Still, being overly hasty and entering into an acquisition arrangement without proper investigation can lead to serious long-term complications—not to mention wasted money. It is essential to understand the background and risks of the business you are considering acquiring. Your business lawyers will be indispensable in helping you organize and implement an effective due diligence strategy. Such a strategy will not only include thorough background investigations, but also appropriate documents in the transaction.
Selling a Business
You’ve worked hard to build a business, but you’re at a point where you would like to sell. That point occurs at different stages in a business’s life cycle and can influence the decisions you make when selling. Some people are true entrepreneurs who love the thrill of building up a business but who are less passionate about running a business once it matures. Others have worked a business from start up to maturity and want to cash out to fund their retirement. Finally, some people just need to stop watering a fruitless venture and pay some bills. Whatever your motivation may be, our business lawyers can walk you through the process.
Asset Sale vs. Share Sale
One of the primary decisions sellers needs to make is whether they’re going to sell their business by selling off the individual assets, or by selling the company that owns those assets (assuming the business was not carried on as a sole proprietorship). The main two considerations in making this decisions are: 1) taxes; and 2) negotiating power over buyers.
Generally speaking, sellers prefer to sell the company because the sale of shares may qualify sellers to use their lifetime capital gains tax exemption, which could save them over $150,000 in capital gains taxes. Beyond that, selling the company is often a cleaner way to sever ties with the business.
On the other hand, buyers usually will prefer to buy the individual assets of a business. The requirement of a seller is usually to deliver the assets free of any liabilities associated with ownership of those assets so it gives buyers peace of mind knowing that there should not be any claims coming out of the woodwork. Buying a company does not always give them this assurance because there may be skeletons in a company’s closet. Furthermore, buying the individual assets allows buyers to depreciate those assets to reduce their future taxes (those assets often will have already been depreciated to nil value within the company so no significant further depreciation is possible if they remain assets of the company).
Despite those concerns, there are circumstances where buying a company may be more practical or tax efficient for a buyer. Examples would be where the company carries large losses that can be used to reduce taxes on future earnings, or where the company has one or more important contracts or licences that are not easily transferable.