In stream 3 Business takeover, you must make an acquisition offer consistent with your project no later than 2 years after your application is filed. That offer must match your succession plan and the service offer of the supporting organization. Drafting it is therefore both a commercial and a regulatory exercise.
What the regulation requires of the offer
Under section 56 of the Quebec Immigration Regulation, you must make an acquisition offer whose object meets the requirements of paragraphs 2 and 3. Paragraph 2 concerns control of a business operating for at least 5 years. Paragraph 3 concerns minimum spending: $300,000 in the Montreal metropolitan community, $150,000 elsewhere.
The Ministry adds that the offer must be consistent with the succession plan and with the service offer of the supporting organization. After the offer, you must provide supporting documents for the spending. The Ministry also states that applications are received at any time, with no maximum number.
The full set of program conditions is covered in our piece on stream 3 Business takeover. What follows is about the document itself.
A deadline that runs from filing
The two-year deadline runs from the filing of the application. It does not run from the notice of intent or from the work permit. Stream 2 works differently, since its start-up deadline is calculated from the work permit.
The steps that follow filing therefore eat into those 2 years. A search for a business started late can leave little time to negotiate and close. We recommend having a serious target and a realistic timetable before filing, and planning the closing itself inside the two-year period.
Letter of intent and firm offer
The letter of intent is a preliminary document. It is generally non-binding, except as to confidentiality, exclusivity and sometimes costs. It serves to open due diligence and to frame the negotiation.
In civil law, an offer to contract contains all the essential elements of the contract and the intention to be bound if it is accepted (art. 1388 of the Civil Code of Québec). The difference between the two documents is not a matter of vocabulary.
Our recommendation is to produce, after the letter of intent, a firm offer subject to specific conditions. Signed by you or by your company, it should then be accepted by the sellers.
What a solid offer contains
A well-built offer includes at least the following elements.
- The parties and the target: identification of the buyer, the sellers and the target company, with its Quebec enterprise number.
- The object: the class and number of shares, and the percentage of voting rights acquired.
- The price: the amount, its adjustments and the date on which they are calculated.
- Payment terms: cash at closing, bank financing and the vendor take-back.
- The sellers’ representations and warranties, and how long they last.
- The conditions and the time allowed to satisfy them.
- The seller’s transition support after closing.
- The dates: acceptance, end of due diligence, closing and long-stop date.
Each element must match the succession plan. A price, a structure or a business different from what was presented creates an inconsistency the Ministry can pick up. If the target changes along the way, consult the Ministry before signing.
Price, vendor take-back and holdback
| Mechanism | Function |
|---|---|
| Cash at closing | Immediate payment of the price |
| Vendor take-back | The seller finances part of the price |
| Holdback | Part of the price stays in trust |
| Earn-out | Payment tied to future results |
| Seller’s transition support | Knowledge transfer over a fixed period |
The vendor take-back is common in takeovers. It is often secured by a hypothec on the shares acquired and backed by default clauses. Its term and instalments must stay compatible with the profitability projected in the succession plan.
The holdback protects the buyer against liabilities discovered after closing. A clear term and clear release conditions prevent disputes. The lawful origin of the funds paid in cash must, for its part, be documented.
The seller’s transition support
Knowledge transfer is at the heart of a takeover. The offer may provide for a paid transition period, attendance at meetings with key clients and a handover of supplier relationships. A non-competition and non-solicitation undertaking, reasonable in duration and territory, often completes this part.
This part must be consistent with the service offer of the supporting organization. The organization offers training, mentoring and brokerage aimed at business transfers. Both documents must describe the same succession process.
Conditions tied to the immigration steps
The usual conditions
They deal with due diligence, financing and the consent of the landlord or the franchisor.
In a takeover by an immigrant entrepreneur, the timetable must also account for the buyer’s status.
The work permit
Obtaining it may condition the closing date.
The condition must then be drafted against the real timetable of the file.
The Selection Certificate trap
Avoid making the offer conditional on obtaining the Quebec Selection Certificate.
The certificate depends precisely on proof of the acquisition, which creates a deadlock.
The Investment Canada notice
If you are neither a Canadian citizen nor a permanent resident, provide for the notice required by the Investment Canada Act.
It is filed before the investment or within the following 30 days (s. 12 ICA).
Rather than a condition tied to the certificate, set a long-stop date inside the two-year deadline. The offer should also settle what happens to the amounts paid if a condition is not met.
How MEKA AVOCAT works on this
We act for the buyer from the letter of intent through to closing. If the target cannot support proof of control, of 5 years of operation or of the required spending, we say so before the offer rather than after the evidence is filed. Our work typically includes:
- the acquisition structure, built around the legal control required in stream 3;
- coordinating legal due diligence before the offer becomes unconditional;
- drafting the letter of intent, the acquisition offer, the purchase agreement and the closing documents;
- coordinating with our accounting and tax partners on the price, the vendor take-back and the holdback;
- aligning the file with the business takeover organization and the broker, where applicable;
- reviewing the franchise agreement and the transfer conditions imposed by the franchisor.
Texts and sources
This article draws on the Quebec Immigration Regulation, the Civil Code of Québec and the Investment Canada Act, together with the Conditions and Apply pages for stream 3 Business takeover published by Quebec’s immigration ministry and section 3.4 of the immigration procedures guide.
Frequently asked questions
Can I make the offer before filing my application?
Yes. The procedures guide then provides for single-step processing (section 3.4), with the offer and spending documents to be supplied from the outset.
When does the two-year deadline start running?
From the filing of the application. Neither the notice of intent nor the work permit is the starting point, unlike in stream 2.
Can I make my offer conditional on obtaining the Quebec Selection Certificate?
That is not a good idea. The certificate depends on proof of the acquisition, which creates a deadlock. Set a long-stop date inside the two-year deadline instead.
What happens if the seller walks away?
The offer must provide for the consequences of a withdrawal and for the amounts already paid. On the immigration side, a new target must be consistent with the succession plan; consult the Ministry before committing.
Preparing an acquisition offer in stream 3?
The offer is drafted reading the succession plan and the regulation alongside the target’s numbers. A meeting lets us align the price, the conditions and the dates with the two-year deadline on your file.
Next: stream 3 Business takeover, due diligence in a takeover, and our work on buying a business.
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Lawyer, member of the Barreau du Québec since 2014, founder of MEKA AVOCAT. This text sets out general legal information: it describes rules that apply broadly, not the answer to a particular case, and does not replace advice on your own situation.
