Success Story | 05 Jan 2022

A successful sale.

A client has been in the allied health industry business for over 50 years and has trusted us to look after his business needs for the last 15. Over time, the business has grown and become very successful.

One good day, our client unexpectedly received an offer to purchase his business, taking him by surprise as he did not know how a sale process worked. Given the relationship we had built with our client, we were called to advise him through each phase of the transaction.

The first step was receiving the letter of intent (LOI) from the purchaser. This document outlined the sale’s terms and conditions, which we reviewed with the client and his legal advisors. Our work was to identify the income tax implications for the shareholders, determining that they would be able to take advantage of the capital gains exemption (CGE). The CGE allows a taxpayer to sell shares owned in a qualified small business corporation to a third party at a 0% capital gains tax rate, up to approximately $900,000 in capital gains. This means that if a shareholder sells his shares and those shares have a gain of $900,000, no taxes would be paid on those gains. The team at SBLR went ahead and determined the taxes owing on the reported sale price in the LOI. We were happy to inform our client that for all the shareholders involved in this sale, the amount of income taxes owing would be $0.

The next step was for the purchaser to begin the due diligence process, where we were asked for financial information and materials related to our client’s company.

The next phase was a line-by-line review of the purchase agreement by our client, his legal advisors and SBLR to determine any questions, revisions and comments that we each had. We shared our recommendations of changes to the agreement during this process to guarantee our client’s benefit and peace of mind.

One of the clauses of the agreement indicated that the company’s final financial statements and corporate tax returns (from the last fiscal year until the date of sale) would be prepared by the new owners. SBLR strongly objected to this clause and highly recommended to our client that he and his advisors be the ones to prepare and submit the final financials. The main clause that affected our client was on a working capital calculation based on the final financial statements. By allowing SBLR to prepare the final financial statements, we saved over $100,000 to our client from this sale.

On the day of the sale, we assisted in providing specifications on how the sale proceeds needed to be directed. Some of the funds were meant to be issued to the shareholders directly, while other funds needed to be directed to a family trust. But our work did not end up here.

We now had to document all the information showing the sale of the shares in our client’s personal tax returns and family trust returns. In preparing this information, we ensured that the gain on the sale of these shares was fully exempt from tax. In total, the client achieved tax savings of over $3.5 million. Needless to say, they were very pleased with our creative planning strategies and proactive approach through each phase of the sale.

We were there to assist, coordinate with other professionals, and work with buyers of the business to make sure that our client’s interest was at our forefront.

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