Articles & Resources
The Closing Documents You’ll Need For An Asset Purchase
Typically a couple weeks prior to the end of a purchase or sale transaction of assets, the purchaser’s solicitor must send a requisition letter to the vendor’s solicitor. The purpose of this letter is to outline certain legal documents they require to protect their client from any future issues and to ensure the transpiration of a smooth transaction.
Below is a description of the typical documents drafted by the vendor’s solicitor and the purpose which it serves.
- Bill of Sale – this is a document that attests to the transfer/sale of assets to a buyer. It demonstrates which assets that the buyer has the ownership upon date of sale and which are excluded, as well as the liabilities being transferred to the buyer.
- HST Election form (GST44) – this form is completed by the buyer and seller, where both parties wish to elect to have the GST/HST not apply to the assets of the business.
- RST Clearance Certificate – if the business existed prior to June 30, 2010, when Retail Sales Tax was collected as HST, then this certificate is required to demonstrate that there remains no outstanding Retail Sales Tax to be paid.
- Indemnity – this is another word for “compensation”, meaning it is to protect the other from liability for damages.
- Statement as to Seller’s Creditors – the seller must deliver a statement, affirmed by an affidavit of the seller listing all of the seller’s secured and unsecured creditors.
- Statement of Adjustments – similar to a bank statement, it lists the debits and credits from the transaction, including the purchase price, and payment of rent, security deposit, and utilities.
- Undertaking – these are promises made by the seller to do something on or after closing.
- Solicitor’s Undertaking – these are promises made by the party’s solicitor to do something on or after closing.
- Allocation of Purchase Price – this must be discussed with your accountant as it can have major tax implications for the both parties.
- Assignment of Telephone Number/Emails/Web Domains – this is to ensure there is a transfer of the following from seller to buyer.
- Direction re Funds – this directs the buyer on how proceeds from the sale should be disbursed and how the legal fees should be disbursed.
- Authorizing Shareholder Resolution – this resolution is signed by the shareholders of the corporation and it provides authorization for a director or officer of the Corporation to execute any documentation required to complete the transaction, to negotiate and amend the agreement on behalf of the Corporation.
- Certificate of Incumbency – this confirms the identity of the signing officers, directors, and shareholders of a corporation as well as which officers and directors have been duly elected/appointed.
- Bring down Certificate – the certificate “brings down” the representations and warranties to closing. It is signed by an officer of the corporation certifying that the representations and warranties are true and correct as of the date of the certificate and no breach has occurred.
- Statutory Declaration – similar to an affidavit, this is a written sworn declaration used to assert a truth of any facts, typically including: that the seller is duly incorporated and organized, validly subsisting and in good standing under the laws of Ontario, that the seller is duly authorized and licensed to carry on a business as presently owned and carried on by it; that the seller has the power, authority and right to sell the assets.
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