BUYING A BUSINESS - DUE DILIGENCE SEARCHES

When acquiring an existing business, there are a range of external or third-party searches that should be considered, with the particulars of the actual business playing a significant role in determining which searches should be pursued.

Certain searches will need the prior assistance and/or authorization of the seller of the business, to permit the receipt of the sought-after information and documentation from the particular third-party.

Numerous searches can be undertaken online, with paid commercial service providers available to facilitate certain searches.

Consideration should be given to the following possible external searches, which is not an exhaustive list, but searches that are well worth your consideration:

1. Corporate Registry. Search for articles of incorporation, and any amendments or continuances; registered and records offices; annual reports; directors and officers; whether the company has been struck off and subsequently restored; copies of encumbrances which may still bind the company; order certificate of good standing; also check that there is no notice of dissent or repudiation of the corporation.

2. Corporate and Business Name Searches. These due diligence searches provide you with a summary of the information on the public record for a company or a business including for-profit companies, not-for-profit companies, sole proprietorships, partnerships or operating trade name registrations.

3. Personal Property Registry. These searches will provide you with a summary of all liens and registrations under the provincial Personal Property Securities Registrations Acts in the provinces you are interested in. These due diligence searches can be performed on any type of business and person. Any outstanding loans from banks, for equipment, motor vehicles, etc. will show up on these searches. You will want to have all these security interests dealt with on or before closing, with arrangements made for their discharge.

4. Vehicle Records Department. Consideration should also be given to commercial service providers that provide accident histories for certain vehicles.

5. Land Title Office. Search for judgments; title; copies of charges and permitted encumbrances; copies of leases and restrictive covenants; other relevant information. By reviewing the land title search, one can attain information as to the registered owner(s) of the property, confirm any rights of way or easements affecting the property, identify any registered encumbrances that cloud the seller’s ownership (e.g., mortgages, liens), confirm the accuracy of legal descriptions for the subject lands, determine if the property has legal access to a highway or public road, reveal any violations of the Planning Act, and more.

6. Office of the Superintendent of Bankruptcy (Innovation, Science and Economic Development Canada). These due diligence searches will provide you with a bankruptcy search on any business or individual in Canada. If the business or individual has claimed bankruptcy the search result will show this.

7. Bank Act Search. These due diligence searches will provide you with a summary of any liens for goods or equipment providing a Bank with a preferential lien against a business or person. Banks lend money to dealers, retailers, shippers or wholesalers for “products of aquaculture, products of quarry and mine, products of agriculture, products of the forest, products of the lakes, rivers, sea, merchandise and wares, manufactured or otherwise” and the agreements entered into between the Bank and the borrower relating to these loans will show up on a Bank Act Search.

8. Canada Revenue Agency: Income tax re: source deductions and corporate or personal income tax; and GST/HST.

9. Provincial Ministry of Finance. Provincial taxes, where appropriate, including provincial sales taxes, provincial health taxes, etc.; and clearance certificate.

10. Provincial Workplace Safety Authority. Looking into workplace safety issues and claims, together with clearance certificate, where applicable.

11. Provincial Employment Standards Branch. Looking into employment standards issues and claims.

12. Human Rights Tribunal. Looking into human rights issues and claims.

13. Provincial Labour Relations Board. If unionized or proceeding towards unionization, search for pending certifications, collective agreements, or any disputes before the Board involving the target company.

14. Other governmental searches as required, depending on the nature of the business of the company (e.g., Mineral Titles Online, Ministry of Forests, Lands, Natural Resource Operations and Rural Development, Canadian Register of Vessels (Commercial and Pleasure Craft), Small Vessel Register (Commercial)).

15. Insurance agent. Confirming placement of adequate insurance.

16. Municipal offices. Search for taxes and utilities; planning department; licences and permits; fire inspector; health inspector; zoning and restrictive bylaws.

17. Court registry search re: actions commenced against the seller and/or its shareholders. These due diligence searches will provide you a list of all ongoing court cases in a requested jurisdiction for a company or person. Court cases can be started in any city so it is important to determine the most likely place where actions may be started for a business or individual, which is usually the jurisdiction where the registered office address of the business is located or where the individual lives. Copies of court documents can be obtained as well.

18. Sheriff’s offices for writs of executions. These due diligence searches will provide you with a list of all executions outstanding from Sheriff’s office in a particular jurisdiction. These executions relate to court cases where a business or individual has a judgment against them.

19. Environmental matters: environment ministries (federal and provincial), Fisheries and Oceans Canada, Contaminated Site Registry. Where appropriate, consider having an environmental audit conducted.

20. Canadian Intellectual Property Office (patents, trademarks, copyrights, etc.).

21. Canadian Internet Registration Authority (www.cira.ca) search; perform domain name due diligence.

External due diligence searches are but one element of the due diligence process, which can provide important insights into the state of the business, as well as actions that will need to be taken in advance of completing the business acquisition. .

Working with experienced legal counsel when acquiring a business is invaluable to the purchase process, given the many dimensions, problems and issues that can arise in putting the deal together and completing it to realize your intended goals. To learn more about our legal practice with respect to the purchase and sale of businesses, contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.