Wayne Carew, Principal & Senior Advisor and Trisha Mossey, Transaction Advisor with MRSB Mergers & Acquisitions, on making sure you choose the buying or selling route that will maximize profit and minimize risk
First off, let’s briefly define the difference between an asset sale and a share sale for those who might not be familiar with these two options. As asset sale means you are selling your business through assets, or its valuable commodities. This could be physical assets such as equipment, furniture and land, or intangible assets like goodwill and patents. In this type of sale, the seller breaks the business down into all its assets and prices each one for sale (e.g. Equipment - $4,000, Vehicles - $12,000, Office Furniture - $2,500 and so forth). A share sale means the sale is solely based on the sale of shares, which includes the assets and liabilities of the business.
There are benefits and drawbacks to each kind of sale, which every buyer and seller should know before embarking on either process. In general terms, business buyers prefer an asset sale. This is mainly because the buyer can pick and choose which assets he or she wants to buy, leaving any undesirable ones out of the equation, and negotiating on the price of the chosen assets. On top of that, the buyer avoids inheriting any liabilities that would have come with the existing business.
In contrast, an asset sale is often a less desirable option for the seller, as it can result in a larger tax bill than if the seller had sold shares. In other words, the seller is not eligible to claim the capital gains exemption of the proceeds of the sale in this scenario. The proceeds of the sale are paid to the company, not to the seller directly.
So what about a share sale? Just as an asset sale is most favourable to buyers, sellers tend to lean toward selling shares because of the capital gains exemption involved. If a business is classified as an active business for tax purposes, the seller may be able to sell the shares and pay no taxes on the proceeds. All Canadians are eligible for an $800,000 lifetime capital gains exemption, so even if someone bought shares in a business for $1 and sold them for $20,000, they would pay no tax on the sale. In other words, all proceeds from a share sale are ‘sheltered’, with the seller reaping the benefits.
Unlike an asset sale, in a share sale the proceeds are paid directly to the owner of the business and any debts and liabilities become the responsibility of the new owner. You can see how a share sale looks better to a seller from this perspective!
When it comes down to it, the difference in preference between buyer and seller often leads to negotiation so that each party feels they are getting an optimal outcome. From the perspective of an M&A professional, we want to promote full understanding between buyer and seller. All factors need to be taken into consideration by both parties and if this is done, both sides should walk away feeling as if they’ve scored a major win.
Our Professionals Team provides some info on a new set of services specially tailored to your business
It’s common knowledge that every career path brings different challenges and rewards. Doctors juggle demanding schedules but are privileged to heal those in need. Architects often deal with insistent and critical clients, but also get to see their creative visions become reality. One thing that all professionals share in common though, is that they lead very busy lives, constantly balancing the many demands of their profession. Unfortunately, this can sometimes mean that the time needed to focus on certain financial areas of your business is scarce at best.
Our advisors understand that, as professionals, you are faced with unique accounting, tax and advisory challenges. We believe that seeking professional advice in these areas is an important step toward structuring your professional practice.
If you are a doctor, dentist, lawyer, engineer or other independent professional, take a moment from your day to answer a few questions, which may
help you determine whether the energy you’re putting into the accounting and tax elements of your profession are saving you time and money, or causing you unneeded hassle:
1. Is your practice optimally structured for tax purposes and income splitting?
2. Do you have an up-to-date will?
3. Do you have adequate insurance to cover taxes in the event of death?
4. Are you paying interest and penalties on tax filings?
5. Are you receiving timely year-end financial statements?
6. Are your records up-to-date to provide you with timely information?
7. Are your billings completed on a timely basis to optimize cash flow?
If the answer to any of these questions is cause for concern, there is a good chance you can benefit from having a qualified professional handle these aspects of your practice for you. The MRSB Professional Team, consisting of experienced chartered accountants and tax specialists, can see to it that all financial aspects of your business are optimized to minimize taxes, maximize wealth and ensure regulatory compliance.
Our advisors understand that, as professionals, you are faced with unique accounting, tax and advisory challenges. We believe that seeking professional advice in these areas is an important step toward structuring your professional practice. We are confident that you will enjoy greater peace of mind knowing that MRSB is expertly managing the financial side of things, leaving you with the time you need to grow your practice.
The MRSB Admin Team sold delicious and healthy fruit smoothies this morning at the office in support of St. Jean Elementary providing an online reading program for students. We thought we'd share a short photo essay of our summer-in-winter style fundraiser.
Prepping the 'raw' materials...
First sip. We loved the umbrella garnish.
Demand was high. Let Round 2 begin...
Two of our team members recently travelled to Barbados to develop business opportunities for MRSB Consulting Services
Contributors: Stacey Evans, Business Development Officer and Brenda Wedge, Principal & Senior Consultant with MRSB Consulting Services
Since our last blog post on MRSB Consulting Services’ international work, there have been some exciting developments in this area that we’re happy to share. Just a few weeks ago we participated in Trade Team PEI’s latest trade mission to the Caribbean. This trip provided an excellent opportunity to meet new potential partners, identify upcoming opportunities and to strengthen existing partnerships with professionals in the region. Our consulting team has now doubled the number of business engagements in the Caribbean and has tripled the number of Caribbean countries where we are providing consulting services. As we build our experience through these projects it becomes increasingly clear that there are many similarities in the opportunities and challenges faced by countries in the region, but there are also unique realities that can only truly be appreciated through working hands-on in specific countries or in partnership with professionals there.
So, what kind of work have we been involved in, exactly? Three of MRSB’s consultants have now been engaged to provide business planning and advisory services to entrepreneurs through the Inter-American Development Bank’s Compete Caribbean Program; Kathleen Townshend and Don Currie are working with innovative entrepreneurs in Haiti while MRSB partner Lloyd Compton is working on an exciting project in Belize.
These missions have played an important role in opening new doors of opportunity. For instance, as part of the trade mission, MRSB was invited to attend a regional Technical Vocational Education and Training Conference. It became evident from the presentations that governments and post-secondary institutions in the Caribbean are at an important crossroad as they realize the importance of building partnerships with industry and ensuring educational curriculum reflects the needs of the national and regional job market. We also had the opportunity to learn about current initiatives as well as upcoming projects that will seek to address these labour market gaps. Our team’s experience working on similar projects with Holland College and the University of Prince Edward Island have provided us with best practices to assist with these types of initiatives in Barbados and across the region.
Looking ahead, MRSB anticipates welcoming an inbound multi-sector mission from the Caribbean to Prince Edward Island in spring 2014 and to further grow our connections and expertise in this promising international market.