Whether you’re selling your business, passing it on to others, closing for good—or if bankruptcy is the only option—it’s important to consider the legalities of how you’ll exit your business. Here are some options and things to consider:
- Succession planning – Having a formal, written succession plan will ensure 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 various government agencies.
- Bankruptcy – Find out how a trustee in bankruptcy can assist you in exiting your business.
Succession Planning
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 percent have a formal, written succession plan, 38 percent have an informal unwritten plan, and the remaining 52 percent don’t have any succession plan at all.
Having a succession plan will help ensure the transition goes as smoothly as possible. A well-designed 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 the 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 for exiting your business, including legal transfer of business ownership, tax implications of disposing of the business, 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, and the easier it’ll be to exit your business.
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. But, try not to disclose personal information as it could give the buyer leverage during negotiations.
Valuation: What is Your Business Worth?
The selling prices of similar businesses in your geographical area or industry should give you an idea of what you can expect to receive for your business.
Sophisticated buyers might evaluate your business based on 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
If you decide to close your business and it’s registered, you’ll 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 it in duplicate to the Corporate Registry office.
- Corporation – To dissolve a corporation, you have three options:
- File the dissolution yourself online at BC Corporate Online – Find the Application for (Voluntary) Dissolution under “Other Filings” and log in using the user ID and password that you used to file your annual reports. If you don’t have your password, contact the Corporate Registry for assistance.
- File by mail – Dye & Durham can file them on your behalf.
- 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. You should also contact your local city hall to cancel your municipal business license.
Declaring Bankruptcy
Bankruptcy should be considered only as a last resort after you’ve exhausted all means to keep your business afloat and pay 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 outstanding taxes to the 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.
Small Business BC Awards – Win a Cash Prize of $5,000
The 2024 Small Business BC Awards are here, with four opportunities for BC small businesses to win a cash prize of $5,000. From now until August 16th, enter your business, or a business you love, and don’t miss out on this opportunity to celebrate small business success.
Small Business BC is Here to Help
SBBC is a non-profit resource centre for BC-based small businesses. Whatever your idea of success is, we’re here to provide holistic support and resources at every step of the journey. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our business articles.