Buying or Selling a Business in Ontario

1. Know what you are buying or selling

An asset sale transfers the assets described in the agreement. These might include equipment, inventory, a business name, goodwill and selected contracts. The agreement should identify excluded assets and any liabilities the buyer agrees to assume. An asset purchase does not automatically remove every potential liability.

A share sale transfers shares of a corporation. The corporation continues to own its assets and remains responsible for its obligations; the buyer acquires an ownership interest in that existing company. A sole proprietorship has no corporate shares to sell.

Neither structure is automatically best. Ask your lawyer and accountant to compare legal exposure, financing, required consents and the after-tax result before settling on a price. BDC explains acquisition liabilities and deal structure.

2. Set the terms before you commit

Early discussions often lead to a confidentiality agreement and a letter of intent, or LOI. The LOI records the proposed commercial terms and helps organize the next stage. Have counsel identify which provisions are intended to bind you, including confidentiality, exclusivity or deposits; the document’s title alone does not answer that question.

Discuss the proposed price, assets or shares involved, financing, investigation period, target closing date and what happens if a condition is not met. A deadline should leave enough time for meaningful review. Do not assume that a deposit is refundable or that financing is guaranteed.

The Ontario Bar Association’s transaction overview highlights the LOI, legal and financial due diligence, and a transaction checklist as foundations of the process.

3. If you are buying: investigate the business

Due diligence means checking the evidence behind the business you have been offered. Work with your advisers to turn concerns into questions, documents and closing conditions.

• Financial picture: review financial statements, tax filings, current results, debt, receivables and inventory. Ask an accountant to test the earnings and assumptions behind the price.
• Customers and operations: assess customer concentration, supplier arrangements, equipment condition and dependence on the current owner.
• Legal records: review corporate ownership, key contracts, disputes, licences and intellectual property. Confirm who owns what you expect to acquire.
• Security interests: ask counsel about appropriate searches and discharge arrangements. Ontario’s Personal Property Security Registration system supports searches against business debtors and certain property.

Keep a written list of unresolved issues. Findings may justify a different price, additional protection or a decision to walk away. BDC’s due diligence checklist explains why financial, operational and legal checks belong together.

4. If you are selling: get ready for scrutiny

Preparation helps a buyer understand the business and gives your advisers time to fix gaps before they delay a transaction.

• Gather current financial statements, tax records and an organized list of assets and debts.
• Locate signed customer, supplier, employment and lease agreements.
• Bring corporate records and ownership information up to date with counsel.
• Identify contracts, licences and relationships that may need consent or a transition plan.
• Explain unusual results or reliance on a small number of customers.
• Decide what support you can realistically provide after closing.

Share sensitive records through an agreed confidentiality process. Ask your accountant to compare the net proceeds of the proposed structures, rather than comparing headline prices alone. BDC recommends preparing clean, complete records before the sale process begins in its due diligence guide.

5. Check the lease, people and required consents

A business that depends on its location needs a careful lease review. Ask counsel whether the transaction requires an assignment, a new lease or change-of-control consent. Check the remaining term, renewal rights, rent obligations and any personal guarantees. Do not assume the premises or an important contract will transfer with the business.

Employee obligations also need specific advice. Under Ontario’s Employment Standards Act, an employee’s earlier service generally counts for certain statutory entitlements when the purchaser employs that employee after a business sale, subject to the statutory rules and exceptions. A sale is not a blanket reset of service. Ontario’s continuity-of-employment guide explains this rule.

Ask your advisers to address continuing staff, accrued entitlements, termination exposure and any separate contractual or common-law obligations. If the business is a franchise or operates in a regulated sector, identify the additional approvals and specialist advice needed before committing to a closing date.

6. Look beyond the headline price

The amount paid on closing may differ from the headline price because of agreed inventory counts, working-capital adjustments, debt repayments, holdbacks or seller financing. Make sure the agreement explains how each amount is calculated, when it is due and how disagreements are resolved.

Ask an accountant about purchase-price allocation, income-tax consequences and GST/HST. The Canada Revenue Agency says a buyer and seller may be able to elect for no GST/HST to be payable on qualifying transfers of a business or part of one when the conditions are met. The election is not automatic and does not apply to every asset transaction. See the CRA’s buying an existing business guidance and Form GST44.

Confirm the financing and cash needed to operate after the purchase, alongside the funds needed to close.

7. Plan the closing and the handover

Use a closing checklist with a person responsible for every item. Depending on the deal, that may include signed transfer documents, lender funding, required consents, debt payouts, security discharges, adjustments and delivery of agreed records. Your lawyer should confirm which conditions must be satisfied or formally waived before funds are released.

Plan the first days of ownership too: access to the premises and systems, introductions to suppliers and customers, employee communication and any agreed training from the seller. Keep a calendar for post-closing payments and other promises. BDC’s acquisition process guide treats preparation, negotiation, due diligence and integration as connected stages.

8. Bring these questions to your first legal meeting

• Does an asset or share transaction fit this business and my objectives?
• What would become binding if I signed the proposed offer or LOI?
• Which investigations, consents and financing conditions should come first?
• What liabilities, guarantees and employee obligations need attention?
• How should deposits, holdbacks, adjustments and seller financing work?
• What documents and decisions do you need from me to prepare for closing?

Bring any draft offer, the business description, your proposed timeline and the records already available. Ask for a clear scope of work and fee quote. Each party should obtain advice that addresses their own interests.

9. Quick answers about Ontario business sales

What is the difference between buying assets and buying shares?

An asset purchase transfers the assets and assumed obligations specified in the agreement. A share purchase changes ownership of a corporation that continues to hold its assets and obligations. BDC explains the liability considerations.

Do employee service years disappear when a business is sold?

Not automatically. Ontario’s employment standards continuity rules can recognize earlier service when the buyer employs the seller’s staff, subject to the statutory conditions and exceptions. Read Ontario’s continuity guide.

Does GST/HST always apply to a business purchase?

The tax treatment depends on the transaction. A qualifying business transfer may be eligible for a joint GST/HST election; eligibility and filing requirements need to be checked with an accountant. See CRA’s guidance.

Can Lamba Law help with buying or selling a business?

Lamba Law’s published services include asset and share purchase agreements, due diligence, seller-financing and transition terms, and closing work. The firm is in Mississauga and serves Ontario businesses. Confirm the scope directly with Lamba Law.