Deciding whether to hire a corporate lawyer for the purchase of a business depends very much on the complexity of the acquisition process and the budget of the purchaser. Beyond those considerations, it is very much a personal decision based on the comfortability of the purchaser in handling the acquisition process.
Corporate lawyers employ a number of evaluation criteria to determine if the company is worthy of investment. Some businesses are straddled with debt or have other existing obligations that negate the benefits of the acquisition by the purchaser. Only through a legal diagnostic conducted by a seasoned corporate lawyer can the purchaser determine the viability of the firm and the financial costs that will be incurred through the acquisition process.
Hiring a Corporate Lawyer to Assess
However, even if the purchaser does not have the financial means to hire a corporate lawyer to assess the viability of the acquisition, there are certain steps that the purchaser can engage in to limit the risks associated with deciding whether to acquire the business.
The first step is determining how complex the ownership structure is of the business. Some businesses will have complex ownership structures that make it difficult for the purchaser to acquire the business outright. If the ownership structure is split between several investors, the corporate charter will likely have to be consulted to determine whether there is a formal procedure that must occur in order to permit the sale of the business to another investor.
This might involve requiring a certain percentage of investors to be consulted during a formal meeting in order to determine whether a sale would be permitted. If the company is publically traded, the purchaser will likely have to consult all relevant shareholders to determine if the sale can occur. Every province has slightly different requirements for the acquisition of a business through the acquisition of shares. If the company is a subsidiary of a larger business that has its headquarters outside of Canada, international law will likely become relevant in determining if and how the acquisition will occur.
The corporate charter will also stipulate what percentage of voters are required to permit the acquisition and will also stipulate minority shareholder rights which could be definitive in determining the way the acquisition will occur. Corporate lawyers will also advise their clients to be wary of astronomical valuations that make the business uneconomical to acquire. The status of the equity will also have a significant effect on how the company is acquired. Different classes of shares will have different variations in voting rights, and this will also affect the acquisition strategy.
If the purchaser is acquiring a distressed business, a corporate lawyer would likely advise its client to determine the major creditors and what their rights are during bankruptcy proceedings.