Corporate & Business Law
We advise small and mid-sized companies on a wide variety of corporate law matters from incorporation and other business structures, to buying or selling companies. We help with employment contracts as well as with creating or reviewing other contracts. Our job is to offer you clear, understandable advice that makes your company run better.
Legal Advice For The Next Chapter In Your Business
You’ve built and worked on your Manitoba business for years. After agonizing over it for so long, you finally found a buyer. We’re here to help you sell your business. Our job is to offer you clear, understandable advice that makes your sale easier. Learn a bit more below or contact us today.
Legal Advice For The Next Chapter In Your Business
We’re not your typical law firm. Our focus is on helping families and small businesses with many of the most common legal situations they face. We listen. We give good advice. And we take time to ensure you understand your legal standing.
You’ve built and worked on your Manitoba business for years. After agonizing over it for so long, you finally found a buyer. We’re here to help you sell your business. Our job is to offer you clear, understandable advice that makes your sale easier. Learn a bit more below or contact us today.
From a business operations perspective, the end result is the same. Once you transfer the business on possession date, be it shares or assets, you become the new owner and control the business. However, from a legal and accounting perspective, these are two entirely different things.
In Manitoba, if you are incorporated, you don’t own the assets of the business personally. The corporation does. It’s the corporation selling the assets, not you. When the assets are transferred out of the corporation, the purchase funds flow in. To get the funds in your personal account, you must withdraw them as dividends and pay the associated tax (anywhere from 30 to 40 per cent depending on your income).
There are ways to mitigate the tax burden. You can withdraw the funds over a number of years paying taxes annually only on the funds drawn out. You can think of this as a type of retirement fund.
Secondly, and perhaps more importantly, when you sell the assets—or rather, when your corporation sells the assets—you don’t offload any “skeletons in the closet.” The seller remains responsible for his or her own “skeletons.” Keep reading to learn more about this.
(provided the business is incorporated)
When you sell shares in Manitoba, you sell shares of the corporation that runs the business. The corporation still owns the assets, so from a legal point of view it’s business as usual for the business’ customers and suppliers.
However, the “controlling mind” behind the corporation changes. From a seller's point of view, this method is preferable for the following two reasons:
When you sell the shares of a Manitoba company, the buyer becomes the owner of the company. This also means that the buyer inherits all of the corporation’s unknown existing liabilities. As lawyers, we do our best to allocate the risk to the appropriate party, but these protections are not absolute.
For example, if the corporation owns land and the buyer discovers an environmental problem such as unknown contaminant storage, the buyer inherits the problem. If the buyer discovered it within a year or two, he or she may be able to pursue you (as the seller will have likely provided representations and warranties suggesting everything was fine). However that ability is usually limited to 12 to 24 months, referred to as the survival period. Once the survival period expires, the buyer has no recourse against the vendor. So in this respect, the seller walks away after the warranty and representation survival period expires knowing he or she is clear.
Provided the shares of the corporation qualify, the seller can take advantage of the lifetime capital gains exemption (LCGE). Under the Income Tax Act of Canada (ITA), when an individual sells qualified shares of a small business, that gain is treated as a capital gain rather than a dividend payment. Capital gains are taxed more favourably, as you only pay the tax on 50 per cent of the gain rather than the full amount. In addition, the first $883,380 (as of 2020, this goes up every year) is exempt. If it’s a farm corporation, the exemption is $1,000,000.
For example, someone selling a business for $883,380 would not pay any taxes (provided the shares qualify). Compare that to an asset sale where the owner must pay dividend taxes and would have to pay $300,000 or more in taxes. As a seller, it’s an easy decision to make. A share sale is always preferable.
We offer clear, understandable legal services from our offices in Winnipeg. Our mission is to make law more accessible.
Étude d'avocats TLR Law Office legal services provided by P.J. Richer Law Corp.
