Authors: Alex Gorka and Brett Anderson
Closing and post-closing matters
Sign and close or sign and then close
In a “sign and close” deal, signing of the purchase agreement and closing of the transaction occur simultaneously. When signing of the purchase agreement and closing of the transaction do not occur simultaneously, signing is followed by an interim period before closing of the transaction. Typically, an interim period between signing and closing is required because certain matters must be addressed prior to closing of the transaction, such as soliciting and obtaining third-party consents or regulatory approval, which the seller would not be prepared to undertake in the absence of a binding purchase commitment.
For a “sign and then close” transaction, the purchase agreement will contain both affirmative and negative covenants on the parties setting out the permitted and restricted actions of the parties during the interim period.
Closing
Closing of the transaction marks the culmination of due diligence and negotiations, where the parties finalize the transfer of ownership or assets as stipulated in the purchase agreement. Closing occurs once all conditions precedent, such as regulatory approvals or third-party consents, have been satisfied or waived. The process typically involves the signing and circulation of closing documents required to effect the transaction. Concurrently, the payment of consideration — whether in cash, shares or a combination of cash and shares — is made in accordance with the agreed-upon terms, often facilitated through escrow arrangements or wire transfers to ensure secure and timely disbursement. Once all closing deliverables are confirmed and the consideration is transferred, the transaction is deemed legally completed, and ownership or control of the target entity or assets is officially transferred to the purchaser.
Post-closing considerations
Post-closing considerations in a private M&A transaction are critical to ensuring the seamless integration of the acquired business and compliance with ongoing legal and regulatory obligations. In a share purchase transaction, one key aspect involves addressing director requirements, which may include appointing new directors to the acquired entity’s board and ensuring compliance with residency requirements under applicable corporate statutes. Director residency requirements vary by federal and provincial jurisdiction, with some requiring that corporations have a minimum number of resident Canadian directors. If satisfying this requirement is problematic for a purchaser, it is possible to migrate (or continue) a corporation into another Canadian jurisdiction without residency requirements; however, in those circumstances, purchasers should consult with their tax and legal teams to consider any knock-on tax, legal and operational implications.
Post-closing considerations in a private M&A transaction are critical to ensuring the seamless integration of the acquired business and compliance with ongoing legal and regulatory obligations.
Additionally, if the transaction involves the acquisition of a corporation operating in multiple jurisdictions, extra-provincial registration may be required to maintain the entity’s legal ability to carry on business in those provinces or territories. A federally incorporated corporation must register in each of the provinces in which it carries on business. Similarly, provincially incorporated corporations must register in each province in which they do business other than the province in which they were incorporated. Similar registration requirements would apply if a foreign corporation purchased business assets directly in Canada. Registration is a straightforward administrative process and typically involves filing registration documents with the relevant provincial authorities, updating corporate records and paying applicable fees.
Other post-closing tasks may include updating minute books, notifying regulatory bodies, revising tax registrations and ensuring that any transitional obligations under the purchase agreement, such as earn-outs or indemnity claims, are properly managed. Addressing these matters promptly and comprehensively is essential to avoid penalties, maintain corporate good standing and ensure the smooth operation of the acquired business.
