This article delves into the intricacies of acquiring a daycare business, outlining the essential steps involved in the purchase process.
Asset Purchase vs Share Purchase
When embarking on the journey of buying or selling a business, the initial step typically involves drafting a purchase agreement, followed by the creation of a share purchase agreement as part of the due diligence (DD) process. Essentially, there are two primary methods for acquiring a business: through an asset purchase or a share purchase.
An asset purchase involves acquiring the assets of the daycare business, while a share purchase entails acquiring all shares from the corporation that owns the daycare business. Opting for an asset purchase would require you to apply for a new Childcare License from the Ministry of Education and potentially reapplying for grants and subsidies from the region which may or may not be approved. However, it frees the buyer from the liabilities of the acquired corporation. Conversely, a share purchase involves assuming all liabilities of the corporation but has the advantage of acquiring licenses, grants, subsidies, and other assets associated with the business. Share purchases are a common practice in daycare business acquisitions to avoid the hassle of reapplying for licenses, especially if the daycare centres is under CWELCC which is not transferable under an asset purchase.
Typical Buying Process for Buying Daycare Business
Navigating this process can be complex, but when working with a real estate agent, a structured approach is typically followed.
Real estate agents facilitate negotiation using a legally binding document known as the Agreement of Purchase and Sales for Business in Leased Premise, which outlines the initial terms agreed upon by the buyer and seller. Upon negotiation, the buyer is expected to provide a deposit held in the seller’s real estate brokerage trust account. Subsequently, a Share Purchase Agreement is created by the buyer’s lawyer, with conditions for review by the seller’s lawyer. This agreement, an extension of the initial purchase agreement, contains more detailed clauses and is essential for finalizing the transaction.
During the due diligence phase, as the deal solidifies, the Share Purchase Agreement is reviewed and executed by both parties, contingent upon the completion of the Purchase Agreement. Following the buyer’s completion of due diligence, the Share Purchase Agreement is submitted to the Ministry of Education at least 30 days before closing to initiate the license transfer. The ministry provides a checklist for both parties to fulfill requirements, with some regions requiring notification 60 days before closing.
There are various approaches to handling the legal aspects of purchasing daycare centers, and this article outlines one of the most common methods, particularly when real estate agents are involved.
Selecting the Right Lawyer for Childcare Business Transaction
Choosing a lawyer proficient in this field is crucial to ensure a smooth process. Purchasing a business differs significantly from buying property, and acquiring a daycare business presents unique challenges compared to buying any other businesses. Therefore, selecting the right lawyer with experience in both corporate law and daycare business transactions is important for successfully completing the transaction.
A real estate lawyer who lacks experience in corporate law may only be well-versed in real estate transactions, such as buying and selling properties. Conversely, corporate lawyers may understand business acquisitions but may lack familiarity with the nuances of daycare businesses. Thus, it’s essential to engage a lawyer who possesses expertise in corporate law and firsthand experience in daycare business transactions. Hiring an inexperienced lawyer for the transaction can lead to prolonged delays in drafting essential documents like the share purchase agreement, resulting in unnecessary expenditure of time and money while potentially leaving you inadequately protected.
In conclusion, acquiring a daycare business involves navigating intricate legal processes, with the choice between asset and share purchases carrying significant implications. Selecting a lawyer well-versed in both corporate law and daycare business transactions is paramount for a successful outcome. By heeding this advice and carefully considering the nuances of the transaction, prospective buyers can ensure a smooth and efficient acquisition process. Ultimately, with the right expertise and approach, acquiring a daycare business can be a rewarding endeavor, offering opportunities for growth and success in the childcare industry.
