How to Exit Your Business: Your Legal Requirements
Whether you’re selling your business, passing it on to your family or others, closing for good—or when bankruptcy is the only option—it’s important to consider the legalities of relinquishing ownership.
- Succession planning. Make sure you have a formal, written succession plan for a smooth transition. Retain the services of a lawyer and accountant to help you sort through the legal and tax implications.
- Selling your business. Find out how much your business is worth, and position it for sale.
- Closing your business. Understand your obligations to the various government agencies.
- Bankruptcy. Find out how a trustee in bankruptcy can assist you.
Succession Planning: The Key to a Smooth Transition
Finding the right succession strategy is the key to handing over or selling your business to an employee, family member, friend, or entrepreneur.
The majority of small business owners are not adequately prepared for their business’s succession: only 10% have a formal, written succession plan, 38% have an informal unwritten plan, and the remaining 52% do not have any succession plan at all.
Having a succession plan will help ensure the transition goes as smoothly as possible. A well-designed succession plan will help you:
- Ensure your business’s future financial stability and value of your business
- Reduce the potential tax liabilities of transferring ownership
- Set a timetable for transfer of ownership to your successor
- Contribute to the growth of the business in terms of market share, profitability, and size
- Provide stability for employees
You should enlist the help of your accountant and lawyer to assist you with the many technical aspects of your succession plan, including legal transfer of business ownership, tax implications of disposing of the business, the financing of a successor, and the division of future profits after the transition.
Selling Your Business
It’s not always easy to sell a business, especially if your business is small, relatively new, unprofitable, or has a declining sales history. The higher the growth potential of your business, the more likely you’ll find a buyer.
Be prepared to explain why you’re selling your business. This is typically the first question a potential buyer will ask you. The more valid your reason, the more serious the buyer will be. Try not to disclose personal information as it could give the buyer leverage during the negotiations.
Valuation: What is Your Business Worth?
The selling prices of similar businesses in your geographical area or industry should provide you with what you can expect to receive for your business.
Sophisticated buyers might evaluate your business on the basis of projected cash flow for the next few years, discounting the value of that cash flow to reflect the amount of risk inherent in the business, and the importance of their personal efforts in maintaining the success of the business.
You’ll need the following information to sell your business:
- Financial statements for three years
- Tax returns for three years
- List of fixtures and equipment
- Approximate value of inventory
- List of employees
- Customer lists
- Copies of the lease
- Franchise agreement (if applicable)
- List of any outstanding loans with balance and payment schedule
- Copies of equipment leases
- Names of outside advisors (business broker, lawyer, accountant)
Closing Your Business: Dissolving Your Business Registrations
If you decide to close your business and it’s registered, you will have to complete and file a dissolution notice with the provincial Corporate Registry.
How you file your dissolution will depend on your business structure:
- Sole proprietorship or partnership: Download and fill out the appropriate sections of the Dissolution or Change of Partnership or Proprietorship form and submit the form in duplicate to the Corporate Registry office. Please note that the mailing address is printed on the bottom of the form.
- Corporation: To dissolve a corporation, you have three options:
- File the dissolution yourself online at B.C. Corporate Online. You would find the Application for (Voluntary) Dissolution under “Other Filings” and you would login using the user id and password that you used to file your annual reports. If you do not have your password, please contact the Corporate Registry for assistance .
- File by mail to Dye & Durham. who can then file on your behalf. The mailing address for Dye & Durham is 734 Broughton Street, Victoria, BC V8W 1E1.
- File your dissolution through a lawyer. You may wish to contact the Lawyer Referral Service .
If you have a business number (BN), you must notify the Canada Revenue Agency. Refer to our Tax Requirements-Exiting section for information on what is required.
You should contact your local city hall to cancel your municipal business licence.
When Bankruptcy is the Only Option
Bankruptcy should be considered only as a last resort, after you have exhausted all means to keep your business afloat and pay all your creditors.
Although declaring bankruptcy can feel like a failure, it can also provide relief.
When you’re in bankruptcy, no unsecured creditor can garnishee your wages or initiate any other collection action against you. However, your secured creditors can repossess any property or collateral you had secured against a loan, such as your car or house.
You also have to pay any taxes outstanding to Canada Revenue Agency. Bankruptcy does not affect the liability of someone who guaranteed or co-signed a loan on your behalf.
If you need to declare bankruptcy, you must contact a trustee in bankruptcy, an individual licensed by the Office of the Superintendent of Bankruptcy to administer the bankruptcy process. A trustee will:
- Discuss your situation and your options
- Complete the required forms
- File the bankruptcy with the Office of the Superintendent of Bankruptcy
- Sell your assets
- Notify your creditors of the bankruptcy
- Prepare a report to the Superintendent of Bankruptcy describing your actions during the bankruptcy
Visit the Office of the Superintendent of Bankruptcy website for more information. You can find a trustee in the business pages directory in your phonebook.Source: smallbusinessbc.ca