Selling a business internally to a firm provides portfolio managers with more options than dealing with a third party, according to Arlene O’Neill, partner, Gardiner Roberts LLP.

O’Neill spoke as part of a panel on business succession at the Portfolio Management Association of Canada (PMAC) 2013 conference and annual general meeting on Tuesday.

“As non-arms length [internal] parties,” she said at the Toronto-based event, “you have much more flexibility in how you plan your purchase.”

In the first place, selling internally allows portfolio managers to take advantage of a share-based sale, which can allow him or her to make more money from the deal, said O’Neill, while still having some of the benefits of an asset-based deal.

The major difference between a share-based sale versus an asset-based sale is that when someone buys shares in a business they are taking on full-liability for the company, she said, meaning they could be sued by a client for an incident that pre-dates the transaction.

“If someone comes out of the woodwork and sues that business after you bought it,” said O’Neill, “except for your agreement with the seller and whatever recourse you have against the seller, that liability of that company is essentially yours as the owner of the business.”

Selling a business internally also allows for more flexibility in the financing of the transaction and overall purchase. For example, with an internal deal the portfolio manager might allow for a payment plan over time instead of paying everything up front, said O’Neill. As well, the larger firm could get involved in terms of financing which means the buyer doesn’t have to go to a third-party, such as a bank.

Furthermore, when a deal is made internally the transaction process is more straightforward than with a third party. With an internal deal less due diligence is required since the buyer will already be familiar with the business, said O’Neill. Furthermore, all agreements can be simpler and more tailored to the individual parties.

Finally, portfolio managers who sell their business internally can feel more confident in signing on the dotted line because the buyer understands the nature of the business and is therefore less likely to sue in future.

“It’s a much more solid transaction,” said O’Neill. “At the end of the day, they know the transaction is virtually fixed in stone.”