Acquiring a Canadian Business

Doing what is legally best for your business and its advancement into Canada, as opposed to protecting prior legal work.

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

The acquisition of a domestic Canadian buisness (corporation or partnership) by an international corporate enterprise requires local Canadian legal representation that is not afraid of addressing key legal issues associated with the target business, which all too often exist, yet due to serious inherent conflicts that we have previously identified within larger law firms, which can pose serious post-acquisition legal and financial problems that we are focused on addressing. And although there are regulatory issues for nationally sensitive acquisitions, the vast majority of corporate acquisitions do not meet that exceedingly high threshold, and instead are focused on optimizing profitiability and minimizing latent legal issues that exist within the target business entity, many of which are particular to Canada and are not necessarily made known by larger law firms.

A. Tax & Financial Considerations

Foreign companies must carefully structure the acquisition to manage tax liabilities and financial risks.

• Tax Structure: The way an acquisition is structured (e.g., as a share purchase or an asset purchase) has significant tax consequences for both the buyer and the seller. A common strategy for foreign buyers is to use a Canadian subsidiary as the direct purchaser to optimize tax attributes and facilitate the repatriation of profits without incurring Canadian dividend withholding tax.

• Due Diligence: Thorough due diligence is crucial. This involves reviewing the target company's financial records, legal contracts, regulatory compliance, and potential liabilities, such as environmental, employment, or litigation risks. For hostile takeovers, due diligence may be limited to publicly available information, increasing the risk for the buyer.

• Financing: Foreign buyers must have adequate financing secured for the acquisition. For public companies, this often requires a letter of commitment from a bank. It is also important to consider where the debt to finance the acquisition will be located, as this can affect tax deductibility.

B. Operational & Post-Acquisition Factors

Beyond the initial transaction, foreign companies must consider the long-term operational impact of the acquisition.

• Corporate Structure: A foreign company can operate in Canada as a branch or a subsidiary. A Canadian subsidiary is a separate legal entity, which can limit the parent company's liability. However, some Canadian jurisdictions have a requirement for a certain number of resident Canadian directors.

• Labor & Employment: Acquiring a Canadian-based company means inheriting its employees and their existing employment contracts. Foreign buyers must understand Canada's labor laws, including employment standards, occupational health and safety, and human rights legislation, which can vary by province.

• Intellectual Property: It's important to protect and manage intellectual property rights in Canada, including trade names and trademarks, under Canadian law.

• Cultural & Business Practices: Understanding the Canadian business environment, which can differ from that of the foreign company's home country, is vital for a smooth integration and successful operation. This includes navigating the federal and provincial legal frameworks, as well as local business customs.

To learn more about how our law firm stands apart when it comes to expanding your business into Canada, in what we do differently from most larger law firms and how this can properly protect and advance your Canadian commercial venture, contact our law firm today for a confidential initial consultation at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.  

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Acquiring a Canadian Business: The acquisition of a domestic Canadian buisness (corporation or partnership) by an international corporate enterprise requires local Canadian legal representation that is not afraid of addressing key legal issues associated with the target business, which all too often exist, yet due to serious inherent conflicts that we have previously identified within larger law firms, which can pose serious post-acquisition legal and financial problems that we are focused on addressing. Read more.

 

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