The acquisition or sale of a fish and game outfitting business can be a complex affair involving overlapping financial, legal and tax issues for both the seller and the purchaser. In such matters it is essential to seek the advice of professionals able to guide you throughout the process. 

Sale of assets or sale of shares: how to decide? 

The structure of the transaction must be negotiated by the parties after analyzing its commercial and tax implications. The negotiation process can prove long and tedious, since what is to one party’s benefit is generally to the other’s detriment! 

To the extent that the seller operates the outfitting business through a corporation with share capital, it may well wish to dispose of all of the issued and outstanding shares of the operating corporation. Such a transaction is often less complicated to conclude, as there is no change in ownership of the assets of the operating corporation. However, the purchaser thereby “inherits”, so to speak, all of the corporation’s “baggage”, including its liabilities and contingencies, which could lead to nasty surprises for an unwary purchaser. If the shares qualify as “small business corporation shares” the seller may be entitled to a capital gains exemption. This can represent a considerable benefit for the seller, as sale proceeds of up to $824,176 (for the 2016 taxation year) may be received tax free. 

Often, however, the purchaser will prefer to acquire only the assets necessary for the operation of the business. A transaction of this kind will allow it to acquire either a portion or all of the assets of the operating corporation (equipment, real estate, goodwill, etc.) without assuming the corporation’s liabilities, known or unknown. The purchaser will thus have no exposure to legal claims that third parties may have against the vendor corporation. From a tax standpoint, an asset purchase will allow the purchaser to increase the tax base of the assets for depreciation purposes. If this type of transaction is opted for, the parties will have to agree on the allocation of the purchase price to the various assets being acquired. The acquirer will generally want to allocate the purchase price to inventory or depreciable property (buildings, equipment, etc.) to the greatest extent possible, in order to reduce the taxable revenues that the business will generate in subsequent years. 

How the transaction is structured will also have an impact on the nature and scope of the purchaser’s due diligence. For the purchaser, the purpose of this exercise is essentially to reduce the risks inherent in acquiring the business. The results of the due diligence can influence both the purchase price and the terms and conditions of the purchase & sale agreement prepared by the parties’ legal counsel. 

The lease from the provincial government – another factor to take into consideration 

Most fish and game outfitting businesses are operated pursuant to a lease issued by the Ministry of Natural Resources and Wildlife, giving the business exclusive hunting, fishing and trapping rights on the leased territory. Such leases, which usually have a nine-year term, impose several obligations on the outfitter. In addition to the obligation to maintain its status as a licensed outfitter, the outfitter must draw up a management plan every three years that covers wildlife conservation and harvesting. 

Under the lease, the Ministry must be notified in advance of any assignment or sublease, and its prior consent is required before the lease can be transferred. If consent is not obtained and the lease is transferred nonetheless, the business faces the possibility of administrative or legal action on the part of the Ministry.