Due Diligence Enquiries
When acting for buyers in a business transaction, one of the key elements of our involvement is to assist our client in conducting what is known as “due diligence”. Due Diligence involves researching the seller and its state of affairs to determine the status of the seller and the seller’s business affairs. Common questions addressed are:
- Does the seller owe any money to any third party? We look into its statutory remittance history with Canada Revenue Agency, its status on lease and strata payments, payments that may be owing to franchisors or other third parties, and payments owing to suppliers or employees. Sellers normally have some sort of financing in place to facilitate their purchase or continued operations. We determine if lines of credit, general security agreements or any other loan agreement is in place, and determine how it will be released or otherwise dealt with upon the sale completing.
- Is the lease or the agreements associated with the seller’s business in good standing, and what are the relationship details? We review any leases, material contracts, supply agreements, independent contractor relationships, employment arrangements and licensing matters to determine if all are paid up, in good standing and will continue to operate beyond the completion date of the sale. Leases must be assigned and normally the landlord must consent to the sale. Third parties agreements may also require consent, or at least notice of the change, to remain enforceable. We determine the status of any of these agreements and work with our client to review and deal with these agreements.
- If the seller operates pursuant to licenses, permits or other regulatory requirements, we determine what those are and work with our client and the seller to ensure compliance is maintained throughout the transaction process, approvals to the sale are obtained, and assignments or reapplications are properly filed so that the buyer can continue operations immediately upon completion of the business purchase.
- Buyers should always want to review the seller’s financial statements to determine the business’ financial situation, profitability and tax status. We work with our client’s accountant(s) to determine and discuss the seller’s financial status.
- There are many other aspects of the due diligence process that will vary with the type of business, and we work with clients to ensure any necessary research is done and issues dealt with prior to them buying the business.
If you still have questions, please send an email to one of our experienced Kelowna lawyers.