Hiring a Corporate Lawyer when Buying a Business


Whether you hire a corporate lawyer for the purchase of a business depends on the complexity of the acquisition process and your budget.

Beyond these considerations, it’s a personal decision based on your comfort level in handling the acquisition process.

Corporate lawyers employ a number of evaluation criteria to determine if a company is worth buying. Some businesses are straddled with debt or have other obligations that negate the benefits of the acquisition by the purchaser. Only through a legal diagnostic conducted by a seasoned corporate lawyer can you determine the viability of the firm and the financial costs that you’ll incur through the acquisition process.

Hiring a corporate lawyer to assess the viability of a business

Even if you do not have the financial means to hire a corporate lawyer to assess the viability of an acquisition, there are steps you can take to limit the risks associated with buying a business.

Your first step is determining the complexity of the ownership structure of the business. Some businesses have complex ownership structures that make it difficult for the purchaser to acquire the business outright.

For example, if the ownership structure is split between several investors, you will likely have to review the corporate charter to determine if there is a formal procedure that must be followed to permit the sale of the business to another investor. This might involve requiring a percentage of the investors to be consulted during a formal meeting to determine if a sale is permitted.

If the company is publicly traded, you will likely have to consult all relevant shareholders to determine if the sale can occur. Every province has different requirements for the acquisition of a business through the acquisition of shares. If the company is a subsidiary of a larger business that has its headquarters outside of Canada, international law will likely become relevant in determining if and how the acquisition will occur.

The corporate charter will also stipulate what percentage of voters are required to permit the acquisition, and which minority shareholder rights determine how the acquisition occurs.

Corporate lawyers will also advise you to be wary of astronomical valuations that make the business uneconomical to acquire. The status of the equity will also have a significant effect on how the company is acquired. Different classes of shares have variations in voting rights, and this also affects your acquisition strategy.

If you are acquiring a distressed business, your corporate lawyer will likely advise you to determine the major creditors and what their rights are during bankruptcy proceedings.

If you are looking to buy a business, and if you need the services of an acquisitions lawyer in Toronto to help you both navigate the process and protect your interests, get in touch.