Share Purchase Agreements; Not All Powers of Attorney are Acceptable for Filing in the Land Title Office #354
CATEGORY: Legally Speaking
TAGS: Contract of Purchase and Sale Land Title Office Power of Attorney Share Purchase Agreements
By Gerry Neely
A licensee recently wrote to inquire about share purchase agreements, presumably with reference to the Contract of Purchase and Sale. The question was: what terminology is best and what additional clauses should be included where shares of a limited company are the subject of the contract?
With rare exception, and that exception is generally a small business with few assets and a low value, the purchase of shares involves potential risks for a buyer; risks that do not exist with an asset purchase. Those risks include:
- undisclosed debts
- reassessment of prior income tax returns and claims for unreported GST and PST
- unpaid, inaccurate or dishonest financial statements
- legal actions against the company
The buyer will need warranties against these and other issues.
Unless the licensee is very experienced or the share value is low, the risk to the licensee who considers the preparation of such an agreement is significant enough to justify shifting the risk to the buyer's lawyer and accountant. Licensees can assist their principals by negotiating the essential terms the parties are concerned about - that is, parties, price, description of the shares and assets, current financial statements, terms of payment and closing dates - in an agreement that is subject to approval by the professional advisors of the parties.
For those licensees who are up to the challenge, the commercial division of the Victoria Real Estate Board has a three-page commercial contract and a two-page share purchase addendum for its use. Contact your local board to determine whether something similar is available in your area.
Licensees occasionally receive a power of attorney (PA) to act as the attorney with authority to list property on behalf of a mentally or physically-handicapped owner. The PA is filed in the Land Title Office in support of the transfer of title if the property sells; however, not every PA will be accepted for registration.
Until a few years ago, when the Power of Attorney Act was amended to allow for the creation of an Enduring Power of Attorney, a PA was deemed at common law to be revoked when the person who gave it became mentally incompetent. The reasoning behind this is that the donor has lost the capacity to decide whether the PA should be revoked.
The advantage of an Enduring Power of Attorney is that the authority continues after a loss of mental capacity, if it contains a statement in the following words or words that have the identical effect: "the authority is to continue despite any mental infirmity of the donor."
The Land Title Office will accept and file an Enduring Power of Attorney, without questioning the mental capacity of the donor, if it has been drawn and executed properly. It will not accept any other PA unless, in accordance with s.56 of the Land Title Act, it is filed within three years of the date of its execution, or the PA expressly excludes the operation of s.56.
A discussion of these two types of power of attorney occurred in a case where the Land Title Office rejected an Enduring Power of Attorney because it stated that the power given to the attorney could only be exercised "during any subsequent mental infirmity." The Power of Attorney Act is written so that powers of attorney have legal effect from the date of execution. Therefore, the Enduring Power of Attorney in this case was unenforceable because its legal effect was postponed until the donor lost her mental capacity.1
|1.||Goodrich v. British Columbia (Registrar of Land Titles), S.C.B.C., New Westminster Registry, March 23, 2002.|
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