Buying a business part 2
By AdvocateDaily.com Staff
Once buyers have navigated the complicated process of acquiring a company, says Goodman, principal of KGPC LLP, they have new decisions to make about how it should be structured going forward.
Sole proprietorship vs. Incorporation
Sole proprietorship is the simplest structure, says Goodman. It limits ownership of the business to one person with direct control over all decision-making and management, entitling them to all the profits, but also exposing them to any associated liabilities.
He says some buyers may wish to convert the company to a corporation in order to benefit from the protection offered by a corporate veil. This option separates the business from its owners by creating a legal entity separate from its shareholders.
“Each one has its own legal privileges and protections,” Goodman says. Either way, “You need to see a lawyer who practises in corporate law to talk you through your options.”
“Once you’ve bought your business, you may want to grow it by adding partners,” says Goodman, explaining that there are two main methods for doing so.
In a joint venture, he says the relationship between the partners in the company is governed by contract, with negotiated terms. The second option is to add shareholders, which can be a complicated process, even for small businesses, regardless of whether the new shareholders are close friends, family or entities at arm's-length to the owner.
“There is a misconception that if you’re not a big enough company, then securities law does not apply to you,” Goodman says.
In fact, provincial laws governing securities apply to every issuer, though he acknowledges there are certain exemptions available.
“To protect against any lawsuit, you will want to consult a lawyer who practices in securities, and paper any transaction to make sure it’s done right,” Goodman adds.
In addition to a lawyer, he says new business owners should engage other professionals, such as an accountant, for help.
“A securities lawyer should work with your team of other business advisors to ensure the corporate structure is effective and compliant with all relevant laws,” Goodman says.
To read part one, click here.