Buying or selling a business in BC: the lease, assets or shares, and taxes

Why a real estate licence: the lease is real estate

Under BC's Real Estate Services Act, anyone who provides real estate services to others for pay must be licensed, and a trade in real estate includes leasing. BCFSA's guideline on the sale of a business says business sales often include a trade in real estate, such as the sale of the property or the transfer of a lease.

In an asset sale that includes real estate, the Act applies, and the deposit is held in the brokerage's trust account. In a share sale with a real estate component, a licensee may still be providing real estate services. With no real estate component at all, no licence is needed, and a licensee who takes part anyway must tell you that the Act does not govern the deal.

Buying the assets or buying the shares

In an asset purchase you buy what you choose — equipment, inventory, the name, goodwill, the lease — and the seller's other liabilities usually stay with the seller; you may need a new business number, and each asset gets its own value for tax. In a share purchase you buy the company itself, with its history and liabilities, and its contracts carry on.

The Canada Revenue Agency says a purchase of shares is generally not subject to GST/HST. Which structure suits you depends mostly on tax, on both sides, so both accountants should weigh in before the offer is written, not after.

Taxes in an asset purchase: the GST election and the PST clearance certificate

GST: if you buy all or substantially all (at least 90%) of the property needed to carry on the business, buyer and seller can jointly elect, on form GST44, so that GST is not charged on the sale. The election is not available if the seller is registered for GST and you are not.

PST: ask for a PST clearance certificate before you buy. Without one, you can be liable for PST the seller still owes. PST applies to equipment and vehicles you buy with the business; it does not apply to inventory bought for resale or to goodwill.

The lease and the landlord

For most small businesses the lease is the deal: without it there is no location. Assigning a lease usually needs the landlord's consent under the lease, and many leases treat a change in who controls the tenant company as an assignment, so a share sale can need consent too. Check the remaining term and any renewal options before you agree on a price.

Employees

Under BC's Employment Standards Act, when a business is sold, the employment of staff who stay on is treated as continuous. If the new owner keeps them and later ends their employment, their years with the old owner count toward what they are owed. If the seller ends their employment before the sale, what is owed stays with the seller.

Financing a business purchase

The federal Canada Small Business Financing Program can finance the purchase of an existing business's eligible assets, but not a share purchase. BDC also finances acquisitions, and seller financing (a vendor take-back) is common; BDC's rule of thumb is a down payment of 20% to 30% of the price. Details on my business loan page.

How I work on a business sale

First I confirm what real estate is in the deal — a lease, the building, or both — and what the landlord and the city require; a business licence, for example, cannot always be transferred to a new owner. Then the structure, with your accountant and lawyer; then price and terms.

I do not value inventory or equipment. BCFSA's consumer guide says real estate licensees are not trained to value inventory, and that is work for your accountant or an appraiser. What I bring is the real estate side and, because I also hold a mortgage licence, the financing side.

If I act on both the business purchase and the financing, I tell you in writing, before you sign anything, which role I am in and how I am paid in each.

Common questions

Do I need a REALTOR® to sell my business in BC?

If the sale includes real estate — the building or the lease — anyone you pay to handle it must hold a real estate licence. BCFSA's consumer guide says a sale of 100% of a company's shares needs no licence only when the business owns or leases no real property.

Should I buy the assets or the shares of a business?

Assets let you choose what you take, and the seller's other liabilities usually stay with the seller; shares take the whole company, liabilities included, and keep its contracts running. Tax usually decides it, so ask both accountants before the offer.

Do I pay GST when buying a business?

A share purchase is generally not subject to GST/HST. In an asset purchase, buyer and seller can jointly elect (form GST44) not to charge GST if you buy at least 90% of the property needed to run the business; not available if the seller is registered and you are not.

What is a PST clearance certificate, and do I need one?

It confirms the seller has paid all its PST up to the date of the certificate. Get it before you buy; without it, you can be liable for the seller's unpaid PST.

What happens to employees when a business is sold in BC?

Under the Employment Standards Act, employees who stay on are treated as continuously employed, so their service with the old owner counts if the new owner later ends their employment.

Can I take over the lease when I buy a store or restaurant?

Usually only with the landlord's consent under the lease, and many leases require consent for a share sale too. Check the remaining term and renewal options before you agree on a price.