Do I need a lawyer to buy, sell or start a business?
by Jack W. Hope
Buying an existing business without a lawyer can be risky. You
want to be sure that you are not inheriting the debts and
legal problems of the former owner. Does he or she
have the right to the business name? Does he or she
owe money on the inventory or equipment and could it be repossessed
by the suppliers? Does the landlord agree to the sale? How
much time is left on the lease? What if the owner has
misrepresented the sales or income of the business? A
lawyer can assist in investigating these and other important
aspects of buying a business and can also help structure
the transaction to your best tax advantage.
When selling a business one must also be concerned that
you have not left any loose ends which may cost you money
after the sale has been completed. For instance, what
if the new purchaser fails to pay the rent, or franchise
fee, after the sale? You may still be responsible for
such debts if you have not made special arrangements with
the landlord or franchise owner. You may still have
personal guarantees outstanding with your suppliers or other
creditors. One must also be careful not to make promises
to the purchaser about the business that may result in a
lawsuit later if things do not work out as well as the purchaser
hoped. There can also be significant income tax and
capital gains tax consequences from the sale of the business
which should be fully discussed with a lawyer or accountant
before the terms of the sale are agreed upon.
Starting a new business is a little easier and can be done
without a lawyer if it is a simple business. You will
have to decide whether or not you are going to operate as a
sole proprietor, a partnership or a corporation and you will
have to set up your business entity accordingly. You
will also have to obtain Federal G.S.T. and Provincial Sales
Tax registration numbers and any other special licences that
may be required for your business, such as a municipal licence
and a liquor licence for a restaurant. It is always
a good idea, however, to speak to a lawyer before setting up
your new business to make sure that you are considering
all of the important issues; for example, whether or not you
should incorporate for the purpose of limited liability, whether
you need an agreement with your partners, whether you are taking
full advantage of potential income tax savings, whether you
have all of the municipal or provincial licences you need to
carry on your business and other matters that your lawyers
can raise with you based upon your particular business plan.
To contact the author, please email jhope@smhilaw.com
The information contained in this message is general
and should not substitute for the advice and counsel of
a licensed lawyer. |
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