Understanding the big picture when buying a business


Laura Stairs Head ShotDue diligence by a prospective buyer of a business could prevent serious problems in the future, Windsor corporate lawyer Laura Stairs tells

Stairs, an associate with Shibley Righton LLP, advises clients that the first step in avoiding pitfalls is to get a copy of the corporate record of the target firm.

"We want to ensure the person the client is dealing with has the authority to make agreements and decisions with respect to the corporation," she says.

"The next thing we look at are the financial statements," Stairs says. "We want to know if this business is profitable, look at the liabilities and debts that are out there and determine whether it's worth investing in."

She says she encourages clients not to enter into any share purchase agreement before having an opportunity to review these types of documents.

"Instead, we often advise them to enter into a Letter of Intent," Stairs says. "This is a document that sets out the general terms, but it is not binding on the parties.

"You want to make sure that it specifically says it is a non-binding agreement, but it allows the potential buyer to undertake a due diligence review," she says. "As a seller, you would want to include a provision in the Letter of Intent that is binding, confirming that any information shared with the potential purchaser is confidential and won't be distributed or used outside the document's terms."

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