Video - Due Diligence

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Associate Dustin Merritt works with clients that are either purchasing or selling a business. It can be very exciting buying an existing business, but there are certainly some due diligence searches that need to be done to protect the purchaser. Dustin discusses further...

Transcript:

One of the questions that I often receive as part of business purchase and sale transactions is what due diligence to conduct and what the various search results mean when we’re conducting those due diligence searches.

I am going to quickly touch on specifically the purchasing of shares of the business. To clarify when someone is purchasing shares of a business you're actually taking over the existing company and taking over any liabilities of that company, so you need to be really careful that you look "under the hood" and you know what you're getting into. Once you take over you are not going to be surprised by any hidden liabilities that could limit your profitability.

Due diligence isn’t really a glamorous part of this kind of transaction but it is critical to protect the interests of a purchaser. A couple of the searches that we typically recommend and conduct for clients would include the personal property registry, where if a business is borrowing money there would typically be a registration against the assets of the business in that registry. So we would conduct that search and if there are any registrations against assets it would require those registrations to be discharged so the purchaser is receiving the assets free and clear.

The other searches would include court searches because we want to make sure that a target company isn’t involved in litigation where there could be some costly awards against them. As well as tax searches, we want to check their accounts with CRA and PST and make sure they are up to date on their filing of tax returns and are not required to pay any outstanding amounts that could be a surprise for a purchaser.

Those are some of the top items that we research and that we review with our clients but there's certainly a longer list of potential searches that we conduct depending on the circumstances of each transaction. So that’s an overview of our due diligence process and something that can be overlooked, but it is really an important part of buying a business.

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