BUY / SELL BUSINESS
Buy/Sell Business | Buy/Sell Equipment | Buy/Sell Medical Equipment | Buy/Sell Technology
For businesses requiring Canadian transactional legal services call 403-400-4092 or email Chris@NeufeldLegal.com
Buying and selling a business across international borders (involving a Canadian entity) is a sophisticated undertaking that blends traditional mergers and acquisitions practices with the complexities of international law, tax treaties, and cultural nuances. In these private transactions, the process is characterized by a high degree of confidentiality and bespoke negotiation. For a foreign buyer soliciting a Canadian business, or a Canadian entrepreneur looking to exit to a global suitor, the primary challenge lies in bridging the gap between two different regulatory playbooks while maintaining the operational integrity of the underlying enterprise.
The legal architecture of such a deal typically hinges on whether the acquisition is structured as a share purchase or an asset purchase. In Canada, sellers almost universally prefer share sales because they can often utilize the Lifetime Capital Gains Exemption, which can shield a significant portion of the sale proceeds from taxation. Conversely, international buyers often push for asset deals to cherry-pick specific liabilities and benefit from a step-up in the tax basis of the acquired assets for future depreciation. Navigating this tension requires sophisticated tax modeling to ensure that the chosen structure doesn't inadvertently trigger double taxation or lose treaty-based benefits.
Beyond the immediate tax implications, regulatory oversight in Canada is a critical hurdle for any foreign investor. The Investment Canada Act mandates that almost every acquisition of a Canadian business by a non-Canadian be either notified to or reviewed by the federal government. While most small-to-mid-sized private deals only require a simple notification, larger transactions or those in "sensitive" sectors (such as telecommunications, culture, or national security) must pass a "net benefit to Canada" test. Additionally, the Competition Act may apply if the parties' combined Canadian assets or revenues exceed specific financial thresholds, potentially requiring a pre-closing waiting period.
The due diligence phase in a cross-border context takes on an added layer of scrutiny regarding employment and "successor employer" liabilities. Canadian employment and labor laws are generally more protective of employees than those in jurisdictions like the United States. For instance, in many Canadian provinces, a purchaser in a share deal automatically inherits all existing employment contracts and years-of-service liabilities. An international buyer must carefully audit these obligations, along with Canadian-specific privacy laws and anti-spam legislation, which may differ significantly from the compliance standards in their home country.
Financial mechanics also present unique hurdles, particularly regarding currency risk and the movement of capital. Since the Canadian dollar fluctuates against other international currencies, parties must decide at the Letter of Intent stage which currency will govern the purchase price and how to hedge against volatility between signing and closing. Furthermore, because Canada does not allow for tax consolidation between parent and subsidiary companies, foreign buyers often incorporate a Canadian Acquisition Company. This corporate entity acts as the borrower for any local acquisition debt, allowing interest expenses to be deducted against the target’s operating income - a vital strategy for optimizing the deal’s internal rate of return.
For knowledgeable and expericed legal counsel with respect to the purchase and sale of business between countries, and related commercial law matters impacting your business, contact our law firm to schedule a confidential initial consultation at 403-400-4092 [Alberta and Western Canada], 905-616-8864 [Ontario and Eastern Canada], or Chris@NeufeldLegal.com.