In my recent post about business brokers regulations in Ontario, Canada, I outlined some regulations in the Real Estate and Business Brokers Act (REBBA 2002) requiring that business brokers (individuals or companies involved in the purchase and sale of businesses) be registered with RECO (Real Estate Council of Ontario).
In fact, Trading in Real Estate requires a registration with RECO and Real Estate includes business for sale in the meaning of REBBA 2002. There are however some exceptions to this requirement. For example, a lawyer acting on behalf of his client is exampt. Another exception is an individual licenced under OSC (Ontario Security Commission) who is involved in the purchase and sale of the shares of a company.
Some non registered "mergers and acquisitions" companies/individuals tried to exploit this loophole by getting licensed under OSC, which could be obtained after passing a written test and generally requires much less education/experience and is obtained in a shorter period. These companies/individuals frequently found themselves in breach of REBBA when a deal initially started as a share purchase turned out into an asset purchase and therefore required registration under REBBA. Most transactions see their structure (SHARES vs. ASSETS) change during the transaction depending on the change in the bargaining power between sellers and buyers and the tax benefits vs. legal and potential tax liabilities.
Furthermore, smaller transactions (value less than $1M) are generally asset transactions since doing a full investigation to determine potential liabilities is seen as too expensive and not worth the expenses given the size of these transactions. As a result, business brokers involved in the purchase and sale of small to medium size companies should generally get licensed under REBBA to practice their profession legally.
In fact, Trading in Real Estate requires a registration with RECO and Real Estate includes business for sale in the meaning of REBBA 2002. There are however some exceptions to this requirement. For example, a lawyer acting on behalf of his client is exampt. Another exception is an individual licenced under OSC (Ontario Security Commission) who is involved in the purchase and sale of the shares of a company.
Some non registered "mergers and acquisitions" companies/individuals tried to exploit this loophole by getting licensed under OSC, which could be obtained after passing a written test and generally requires much less education/experience and is obtained in a shorter period. These companies/individuals frequently found themselves in breach of REBBA when a deal initially started as a share purchase turned out into an asset purchase and therefore required registration under REBBA. Most transactions see their structure (SHARES vs. ASSETS) change during the transaction depending on the change in the bargaining power between sellers and buyers and the tax benefits vs. legal and potential tax liabilities.
Furthermore, smaller transactions (value less than $1M) are generally asset transactions since doing a full investigation to determine potential liabilities is seen as too expensive and not worth the expenses given the size of these transactions. As a result, business brokers involved in the purchase and sale of small to medium size companies should generally get licensed under REBBA to practice their profession legally.
Why do you say that REBBA comes into force once the transaction becomes an asset sale? Where in REBBA does it differentiate between share and asset?
ReplyDeleteIn the introductory section in the definition of Real Estate and in the first clause where it says who is allowed to trade in Real Estate.
ReplyDelete