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How to invest in a business and immigrate to Canada?

Last Updated: October 13, 2021

The first step toward a business investment is to gather market insights. Your lawyer is well qualified to suggest opportunities that are best suited for immigration purposes and to help you identify those that are a high risk.   Secondly, connect with an experienced broker who specializes in the sale of businesses or who has some experience with the same. Your lawyer can make recommendations in this regard.   Due diligence should be thorough and done before signing agreements and exchanging any of your hard-earned funds. Ask why the business is for sale and how long it has been for sale? Reasons for sale can include retirement, loss of interest, family matters, divorce, no clear succession plan and other variables.   Retail businesses and restaurants have a set of unique factors that require extensive due diligence. Your lawyer and broker can help you understand local issues such as demographics, changing local by-laws, pedestrian and drive-by traffic and changing market trends.   You may come across a very attractive price for a business. It is important to understand that in many cases, it may be unlikely you will be able to revive a moribund situation, regardless of your financial and human capital input.   Other significant issues to consider include:  

Financial Due Diligence:

  Seek expert guidance when investigating the financial worthiness as represented by the seller. Upon signing a NDA, sellers will share their financial records. Receipt of the latest financial records is the first and most important step in your due diligence process. Mr. Prakash and other experienced CPAs will review the financial statements with you and draw your attention to areas of concern and strength. Your lawyer is not usually involved at this stage. Tax returns, Balance Sheets, licenses, P & L statements, stock, dead stock etc. are all reviewed and verified. Encumbrances and debt needs to be reviewed, understood and generally paid for with the proceeds of the sale by the seller. Your CPA will also investigate for tax liabilities and litigation.Financial due diligence is one step in your process.    

In some cash-oriented businesses, there may be cash

that the seller has been hiding from tax authorities from sales made under the table. In this case you may want to consider a conditional offer, upon verification of the hidden cash income. You may ask to work with the owner for a mutually agreed upon brief period to understand the cash flow and whether the cash income claims resonate as true or reasonable.

If the owner declines your request, you may be faced with a difficult decision.

 

Assets or Shares:

Buyers usually want to buy assets and sellers usually want to sell shares. Have your lawyer or CPA check for liens against assets, inventory or real estate. In buying shares it is important to understand that liabilities of the business will be your responsibility.

Structure your deal such that certain security remains in the form of a holdback of the purchase price.

   

Lawyers have their own legal searches like title & off title searches. For example, if it were a leased business, there would be clearances from the landlord, if there were multiple tenants’ then estoppel certificates from them. Zoning, work orders, fire clearance etc. any third party contracts have to be looked into.

     

Most individuals are concerned with financing

: Since you are living outside of Canada, it will be difficult to secure financing for your initial purchase. However, there are private lenders who can assist. The interest rate will be higher than the going bank rates for these types of loans. On the plus side, these loans are a step toward building credit in a country where you are starting anew. Once you are settled and have status in Canada i.e. (a work permit holder or permanent residency) then you can always refinance your deal. Be sure to deal with qualified brokers or directly with the banks.    

Immigration Perspective:

  The minimum investment for a business tends to fall within the range of $120,000 – $150,000 CAD. Businesses within this price band are not usually generating a signific net income. In additional to the purchase price, working capital will need to be set aside for the initial few months; the amount will vary on individual circumstances and the business purchased. The business must be run as an active hands-on owner with your intentions clear for both yourself and in the eyes of Immigration Canada officials. This is precisely why the applicant is initially awarded a work permit and the PR status follows after one or more years of actively running the business. My personal preference are the Federal Business Immigration programs rather than provincial. PNPs are quite similar, but with provincial programs your performance is also take note of.   Franchise businesses are a lucrative and much easier option to pursue. Franchisors have an established, proven brand, the business is stable, market research is done for you, one or multiple locations can be picked, training is mandatory and company run, there are a wide range of opportunities at a variety of investment levels, requisite paperwork from the franchisor is easier to obtain.  
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