Due Diligence in Business Acquisitions

When considering the purchase of an existing business, proper due diligence is essential. Without it, you may lack the information necessary to make an informed decision. “Due diligence” refers to the investigations and searches carried out by a prospective buyer, often with the assistance of lawyers and other professional advisors.

The purpose of due diligence is to provide a clearer understanding of the business’ assets, liabilities, and overall financial and legal standing—including matters that may not have been disclosed by the seller. Equipped with this information, you will be better positioned to decide whether to proceed with the transaction and, if so, to negotiate more effectively on key terms such as purchase price and other conditions.

Below is a summary of common due diligence searches we conduct for clients. This list is not exhaustive—the scope of searches varies depending on the type of business, its structure, and the nature of its operations. In some cases, the seller’s written consent will be required to perform these searches.

1. Corporate Registry and Records

For businesses operated through a corporation, you should review the company’s records to confirm:

• The company was validly incorporated and remains in good standing.

• The identity of directors and shareholders, and that those negotiating the sale have the authority to do so.

• The company’s legal capacity to transfer its business assets to you.

• That the company has not been dissolved or placed at risk of dissolution.

2. Employment Standards and WorkSafeBC

If the business has employees, searches should be conducted with:

• The Employment Standards Branch (ESB), to confirm there are no outstanding obligations for unpaid wages, vacation pay, or termination pay.

• WorkSafeBC, to ensure the business is properly registered and that there are no unpaid assessments, penalties, or compliance orders.

3. Court Searches

Registry searches of both the business and its owners can reveal pending or past litigation. Court records, which are generally public, provide insight into potential liabilities and claims that may affect the value of the business.

4. Tax Compliance

It is critical to confirm the company is current with tax filings and remittances. Common searches include:

• Source deductions: verifying that amounts have been properly withheld and remitted for employee wages and salaries.

• Corporate tax: ensuring timely filing of returns and payment of assessed taxes.

• Excise tax and GST/HST compliance: confirming collection and remittance of applicable federal taxes.

• Provincial Sales Tax (PST): confirming collection and remittance where applicable.

5. Personal Property Securities Act (PPSA) Registry

A PPSA search discloses liens, security interests, and other encumbrances registered against the company’s personal property, providing insight into the business’ outstanding liabilities.

6. Land Title Records

If the business owns real property, land title searches should confirm:

• The registered ownership of the property and whether it is held jointly with others.

• Any charges, encumbrances, easements, or restrictions affecting the property.

Why Due Diligence Matters

Although there are costs associated with these searches, the information uncovered can be invaluable. Proper due diligence can help you identify hidden liabilities, strengthen your negotiating position, and, in some cases, prevent costly surprises after closing.

For advice or assistance with business acquisitions or other corporate matters, please contact us.