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Buying or selling a business

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Having your own business can be a joy, but also a real pain.

Whether you are planning on buying or selling a business, there are quite a few things to consider when doing either.

First of all, as with most things in Canada, businesses are regulated by the provinces.

However, when it comes to taxes, businesses are regulated by both the province and the federal government, so you have to file business taxes with both your provincial taxation body and the Canada Revenue Agency.

Buying a business

When businesses are for sale they are advertised in newspapers or on websites, however scams are always possible so make sure it’s a legitimate business that is being sold. However, there are also specialists that can help you find a business to buy.

Things to evaluate:

  • What kind of business should I buy?
    • Franchise or independent business?
  • Where is your business going to be located?
  • How much am I prepared to pay for the business?
  • Do I need a business number?
  • How do I set up my tax information with the government?
  • Do I have to file an HST/GST number?
  • How do I set up payroll (if applicable)?

Selling a business

Tax considerations are quite important when you are selling your business.

You have to do the following when closing your business:

  • Cancel your business number, if you have one – that means you will have to contact your tax services office;
  • If you have employees, you have to close your payroll account;
  • If your business has a GST/HST account, you must close it through the tax services office.

Assets or shares?

This question is important, for both buying and selling a business. There are benefits and liabilities to both methods of buying or selling a business.

Assets

A sale of assets means that you are conveying the ownership of the company’s assets to another owner or entity. Examples of the type of assets you can have are: inventory, accounts receivable, equipment and more.

The good thing about an asset sale is over the years, assets can be written off through the depreciation formula as set out by the Canada Revenue Agency.

Bargaining asset price can result in tax advantages.

Shares

A share sale for a business works a bit differently than an asset sale.

While selling shares to a buyer is also a sale of assets, you are also transferring the name of your business.

However, it goes even further than that: you are selling the liabilities, debts, lawsuits, tax problems and more to the person or company who or which acquires your business. That may be an attractive option to you if you need to sell fast and your business has problems, but it will likely lower the worth of your business to the buyer.

On the other hand, if you are buying a business through a share sale, you need to be aware that you are buying the entire problems, including all the liabilities, taxes, owed debts, lawsuits and more. Before buying the shares of a business, you need to go over the financial reports and accounting to be aware of what you are buying. That may actually give you an advantage during price negotiations, since you are acquiring risk.

You may ask yourself: why in the world would you buy the shares in a business with all this information?

Not all businesses have troubling financials. Also, the option of buying shares is actually an appealing option when buying a brand name with a good reputation.

Read More:

Buying a business

Selling a business