Buying or Selling Business Assets in Alberta? A Guide to Asset Transactions

When buying or selling a business in Alberta, one of the most critical decisions is the structure of the deal: will it be an asset transaction or a share transaction? An asset purchase is the most common route, particularly for small to medium-sized businesses, as it offers distinct advantages and risks for both parties.

Understanding the nuances of an asset deal is essential to protecting your interests and ensuring a smooth transition.

What is an Asset Transaction?

In an asset transaction, the buyer purchases specific assets and liabilities of the business, but not the corporate entity itself. Think of it as buying the contents of the store—the inventory, equipment, brand name, and customer list—but not the legal shell that owns the store.

Assets typically included are:

• Equipment and furniture

• Inventory

• Intellectual property (trade names, logos, websites)

• Customer lists and contracts

• Leasehold interests

• Goodwill

  
  

The Buyer's Perspective: Advantages and Key Steps

For a buyer, an asset purchase is often the preferred option due to the protection it offers.

Key Advantages for Buyers:

• Reduced Liability: You are generally not responsible for the seller's past liabilities, lawsuits, or unknown debts. This "clean break" from the business's history is a significant protective measure.

• Tax Benefits: Purchased assets can be "stepped up" to their fair market value, allowing for higher depreciation claims and reducing future taxable income.

• Selective Purchasing: You can pick and choose which assets you want to acquire, leaving behind outdated equipment or undesirable contracts.

  
  

Critical Steps for a Buyer:

1. Due Diligence: This is your investigation period. You must verify the value of the assets, ensure the seller actually owns them, and check for any hidden liens or encumbrances.

2. Clear Asset Identification: The purchase agreement must meticulously list every asset being sold to avoid future disputes.

3. Third-Party Consents: You may need to get consent to transfer key contracts, leases, or licenses from the respective third parties.

   
   

The Seller's Perspective: Advantages and Key Steps

For a seller, an asset transaction also presents specific benefits and considerations.

Key Advantages for Sellers:

• Retaining Corporate Entity: You keep the legal corporation, which allows you to sell the business assets but continue operating in a different line of business or wind down the corporation on your own terms.

• Selective Sale: You can choose to retain certain assets, such as cash or real estate owned by the corporation.

• Simpler Process (Often): It can be a more straightforward way to divest a business than a complex share sale.

  
  

Critical Steps for a Seller:

1. Accurate Representation: You must honestly represent the condition and ownership of the assets in the agreement. Misrepresentation can lead to significant legal liability after the sale closes.

2. Understanding Tax Implications: The sale of assets can trigger tax consequences for your corporation. It is crucial to consult with an accountant to understand the tax treatment of the sale proceeds.

3. Managing Liabilities: While the buyer typically avoids historical liabilities, you, as the seller, remain responsible for any debts or obligations not assumed by the buyer.

   
   

The Critical Role of the Asset Purchase Agreement

The heart of the transaction is the Asset Purchase Agreement (APA). This complex contract dictates the entire deal, covering:

• The precise list of purchased assets and assumed liabilities.

• Representations and warranties about the state of the business.

• The purchase price and adjustment mechanisms.

• Covenants for operating the business before closing.

• Indemnification clauses to handle post-closing disputes.

  
  

Ensure Your Business Transaction is a Success

Whether you are looking to acquire a new opportunity or sell your life's work, the structure of the deal is paramount. An asset transaction offers powerful benefits but requires careful legal navigation to avoid pitfalls.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The purchase or sale of a business involves significant legal and financial commitments.

Ready to move forward with a business asset transaction in Alberta? The experienced corporate lawyers at Jade Sunrise Law can draft and negotiate your Asset Purchase Agreement, conduct due diligence, and protect your interests. Contact us today to secure your business future.