Have you purchased a business or are you interested in doing so? It’s an exciting challenge!
Do you know what happens to the company’s contracts and obligations after the sale? Do you become liable for them? The answer depends on various factors.
Do you take over the commercial lease?
It all depends on what is set out in the purchase agreement. Are you buying the company’s shares or its assets?
Purchasing the shares
If you buy the company’s shares, you will also take over its commercial lease (if it has one) if the lease was originally signed on behalf of the company by one of its directors. However, if the lease was signed by someone in a personal capacity (that is, not on behalf of the company), then the person who signed the lease will remain responsible for it after the company is sold.
Make sure to also check the lease itself. Sometimes, leases include specific clauses about what will happen if the business is sold.
Purchasing assets
If you just purchase the company’s assets, such as equipment or inventory, you will not take over its lease.
When you buy a company’s assets, you buy the property it owns. Because you are not buying the company itself, you will not assume responsibility for its obligations. In this case, the vendor or the company itself will remain responsible for the lease after the sale.
For more information about the difference between purchasing shares and purchasing assets, see our article Buying a Business.
Do you take over the company’s contracts with clients and suppliers?
As with the company’s lease, the answer to this question depends on the purchase agreement: did you buy the shares or the assets?
Purchasing the shares
When you buy the shares of a company, you “step into the shoes” of the vendor. This means you take over all contracts that were signed on behalf of the company, as well as all the debts and obligations that existed at the time of sale.
For example, if the company signed an agreement to manufacture 50 chairs, you will have to fulfill this agreement. Similarly, if the company has a debt of $25,000, you will need to make sure that the company repays that money.
Purchasing assets
When you buy only the assets of the company, you do not take over its contracts, obligations, or debts. The vendor remains responsible for them.
For more information about the difference between purchasing shares and purchasing assets, see our article Buying a Business.
What about the employees?
The sale of a company does not end its employment contracts. The employees’ contracts remain valid as long as you continue to operate the business. This is the case whether you purchased the assets or the shares of the company.
For more information about your obligations as an employer, see our articles: