Corporate Law – Glen’s Story

Jon Quaglia Corporate Law

Business as Usual with our client Glenn and his manufacturing business…but what is usual?

My client Glenn has a small manufacturing business. It is not incorporated.  He makes a very efficient fan for corn bins. The business is very successful. Glenn has a colleague named Frank who owns an incorporated business 1234567 Ontario Inc. Frank is not a terrific business person. 1234567 Ontario Inc. owes some money to creditors including Canada Revenue Agency. On the plus side 1234567 Ontario Inc. owns a building, equipment, and has 2 employees that all could be used to manufacture Glenn’s fans in addition to the components Frank builds onsite. Verbally, Glenn has agreed to buy 50% of the shares in 1234567 Ontario Inc. for $100,000. Glenn wants to know how to make this deal happen.

Although I would very much like be “all knowledgeable” in every area of the law – that is not realistic. As a result, I have entered into an association with Stacey Bothwell one of the partners at the Siskind’s law firm in London. Although it is an association, Stacey does the back breaking work and I am the guy on the sideline leaning on my shovel giving my two cents of advice. On this particular file, Glenn and I get Stacey on the phone. Stacey asks lots of questions about Glenn’s accountant, Glenn’s financial position, Frank’s business, Frank’s employee’s and Frank’s financial circumstances. During the first conversation Stacey discusses the pros and cons of buying the assets of Frank’s business (ie. buying the real estate, and the equipment, and the inventory, etc.) vs. the pros and cons of buying Frank’s shares in the 1234567 Ontario Inc. (ie. buying accountants payable, employee obligations, buying debts owed to CRA, etc.). The first discussion ends with Glenn giving Stacey permission to speak to Glenn’s accountant.  

By the end of the following week Stacey has spoken to Glenn’s accountant and confirmed Glenn is going to make an offer to buy 50 per cent of the shares in Frank’s business. A meeting is set up at my office, between Glenn, Stacey, Glenn’s accountant and because Glenn wants me to be present I am at the meeting as well (on these files client’s only ever pay for my time or Stacey’s time depending on who is doing what work – clients do not pay for both of our time). At this second meeting, Stacey reviews with Glenn and his accountant the terms of an offer which include: the amount of a deposit; the amount that Glenn will pay for 50% of the shares; a clause that requires the Frank to turn over five years of income tax and financial records; a clause that closing the deal is conditional on Glenn and his accountant being satisfied with the financial disclosure; a clause that requires Frank to turn over a list of clients as well as a clause that Glenn agrees to keep that information confidential; a number of representations that Frank is disclosing all of his creditors and warranties by Frank that he will financially protect Glenn if the information released is not complete; a condition that Frank terminate one of the employees and pay him off all obligations owed prior to closing; a condition that Frank sign an 3 year employment contract on specified terms; a proposal about what would happen if either Glenn or Frank die while owning 50% of the shares; a proposal about how Frank and Glenn would resolve a dispute if they can’t agree on a decision about the business; and wording that the close of the transaction is conditional on the Glenn arranging satisfactory financing by a fixed date. As you can see, it is a very comprehensive document.

 Once Glenn and his accountant are satisfied with the document, Glenn signs and I witnesses his signature. Glenn leaves the office a happy client. My staff deliver the agreements and the deposit to Frank’s lawyer. Signing the Agreement is only the first step in the process of buying into the business. There is a lot of work for Stacey to do to complete the transaction, but that will have to be the subject matter of a further post.  

Thanks for reading. Talk soon,
Jon