Business buyout: a guide for beginners and professionals
Types of buyout
- family succession: transfer to children, often with an estate freeze;
- management buyout (MBO) or by employees, sometimes through a worker cooperative;
- external buyer: competitor, investor or entrepreneur.
Key steps
- Valuation of the business (assets, earnings, cash flow, market comparables).
- Structuring: share purchase or asset purchase, holding company of the buyer.
- Financing: bank loan, balance of sale price, earn-out, BDC or Investissement Québec, Centre de transfert d’entreprise du Québec support.
- Due diligence, letter of intent and purchase agreement.
- Transition: training by the seller, communication to employees, clients and suppliers.
Tax issues
The seller may claim the lifetime capital gains exemption on qualified small business shares. Since 2024, rules facilitate intergenerational transfers to children (s. 84.1 ITA as amended) and employee ownership trusts have been introduced. These provisions are complex and require tax advice.
Agreements
Purchase agreement, non-competition of the seller (assessed more leniently than in employment, since art. 2089 C.C.Q. does not apply to the sale of a business, but still limited in time and territory), consulting agreement, security for the balance of price and a new shareholders’ agreement if the seller remains a minority shareholder.
