A Share Purchase Agreement (SPA) in New Brunswick transfers the legal ownership of a business by selling its shares. A well-structured SPA must include strict representations, warranties, and indemnities. Having a local business lawyer draft this agreement typically costs between $3,000 and $7,000 CAD.
Buying or selling an incorporated business is one of the most significant financial transactions you can undertake. In New Brunswick, you generally have two ways to buy a business: purchasing the physical assets (Asset Purchase) or buying the shares of the company itself (Share Purchase). When you buy the shares, you take over the entire corporation, including its history, contracts, and potential liabilities.
Because you are adopting the company’s past, a Share Purchase Agreement (SPA) is vital to protect your investment. 🔒 Whether you are taking over a popular restaurant in Moncton or an IT firm in Saint John, the SPA acts as the legal roadmap for the transaction. It outlines exactly what is being sold, the purchase price, and the promises the seller is making about the health of the company.
Step-by-Step Process in New Brunswick
Creating and executing an SPA is a meticulous process. Rushing through it without proper legal and financial advice can lead to disastrous surprises, like discovering hidden tax debts months after closing.
Step 1: Signing a Letter of Intent (LOI)
Before drafting the massive SPA, buyers and sellers usually sign a Letter of Intent. 📄 This is a short, often non-binding document that outlines the basic terms, such as the proposed price and closing date. It is almost always accompanied by a Non-Disclosure Agreement (NDA) to keep the company’s financial secrets safe during negotiations.
Step 2: Conducting Due Diligence
This is the most crucial step for the buyer. Your law firm and accountant will examine the company’s corporate minute books, employment contracts, commercial leases, and Canada Revenue Agency (CRA) tax filings. You need to verify that the business actually owns what it claims to own and that there are no pending lawsuits in New Brunswick courts.
Step 3: Drafting Representations and Warranties
The core of the SPA is the “Reps and Warranties” section. 📚 Here, the seller makes legally binding promises about the business. For example, they warrant that taxes are fully paid, equipment is functional, and there is no hidden environmental damage on the property. If these turn out to be false, the buyer can sue for breach of contract.
Step 4: Establishing Closing Conditions
The agreement must list specific conditions that must be met before the money changes hands. This might include getting the landlord’s approval to transfer the commercial lease, securing financing from a Canadian bank, or obtaining a tax clearance certificate from the CRA.
Step 5: Closing and Updating the Corporate Registry
On the closing date, funds are transferred, usually through a lawyer’s trust account. 💼 Old directors resign, new directors are appointed, and share certificates are issued to the buyer. Your lawyer will then update the Service New Brunswick Corporate Registry to reflect the new management.
How Much Does it Cost in New Brunswick?
Structuring an SPA is complex, and professional fees reflect the risk involved. Here is what you should budget in CAD:
- Lawyer Fees (Drafting SPA): A standard SPA for a small to medium business usually ranges from $3,000 to $7,000 CAD.
- Due Diligence Fees: Having lawyers review leases, contracts, and corporate history generally adds $2,000 to $5,000 CAD to your legal bill.
- Accounting Fees: Hiring a CPA to value the business and review financial statements typically costs $2,000 to $6,000 CAD.
- Government Filing Fees: Filing a Notice of Directors with the New Brunswick Corporate Registry costs a nominal fee of about $20 to $50 CAD.
How Long Does the Process Take?
Buying a business is not like buying a car; it requires months of preparation. 🕑
| Transaction Phase | Average Timeline | Key Factors |
|---|---|---|
| Negotiating the LOI | 1 to 3 weeks | Agreeing on the baseline price and signing confidentiality agreements. |
| Due Diligence Period | 30 to 60 days | Depends heavily on how organized the seller’s financial and legal records are. |
| Drafting and Closing | 2 to 4 weeks | Finalizing the SPA wording and satisfying all closing conditions. |
Frequently Asked Questions (FAQ)
Do I inherit the company’s debts in a share purchase?
Yes. Because you are buying the legal entity itself, the corporation retains all its existing debts and liabilities. This is why thorough due diligence and strong indemnification clauses in the SPA are absolutely critical.
What happens to the employees when I buy the shares?
In a share purchase, the employer remains the corporation. Therefore, the employment contracts continue uninterrupted. You inherit the employees, along with their seniority and any future severance obligations.
Can I use a free SPA template from the internet?
Using a generic template is highly dangerous. A template will not account for specific New Brunswick provincial laws, unique tax implications, or the specific risks associated with the industry you are buying into.
What is a holdback in a Share Purchase Agreement?
A holdback is a portion of the purchase price that the buyer’s lawyer keeps in a trust account for a specified period after closing (e.g., 6 to 12 months). It is used to cover any undisclosed liabilities or tax bills that pop up after the sale.
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