Current to July 20, 2026
Buying a business in Ontario usually follows the same six steps, in this order:
- Agree on the basic deal terms in a letter of intent.
- Decide whether you're buying the assets or the shares.
- Dig into the business through due diligence.
- Line up your financing.
- Negotiate the purchase agreement.
- Satisfy the closing conditions and close.
The right structure and terms depend on what you're trying to accomplish, the taxes involved, the risks already sitting inside the business, and what you're actually buying. Skipping steps, or rushing them, is how buyers end up owning problems they didn't know were there.
- Buyers usually prefer buying assets, not shares, because it lets them pick what they take on and leave old problems behind.
- Sellers usually prefer selling shares, because it's simpler for them and can come with tax perks.
- A letter of intent gets the big terms agreed on paper before anyone pays a lawyer to draft the full contract.
- Due diligence is where you test whether the business is really what the seller says it is. Problems found now are cheap to fix. Problems found after closing are not.
- Few buyers pay the full price in cash. Most deals mix a bank loan, a loan from the seller, and sometimes a bonus tied to future performance.
- The purchase agreement is where the real protection gets built in, through the seller's promises and what happens if one of them turns out to be false.
- Closing needs permission slips too. Contracts, leases, and licences often can't just transfer automatically.
- Good legal and tax advice, at every step, is what turns "buying a business" into "owning a business you actually understand."
Asset Deal or Share Deal
The very first decision shapes almost everything else. There are two ways to buy a business in Ontario, and they work very differently.
In an asset deal, you buy specific things, like equipment, inventory, contracts, intellectual property, and the goodwill of the business. You only take on the debts and obligations that you and the seller agree to in writing, although a few types of liability can still follow the business by law even if you didn't agree to them.
In a share deal, you buy the shares of the corporation itself. The company keeps existing exactly as it was, just with a new owner. That means its contracts, employees, and liabilities, including ones nobody has found yet, come along with it.
- You pick which assets and liabilities you're taking on
- Old, unknown problems usually stay with the seller
- Contracts and leases often need to be reassigned, sometimes with the other side's consent
- Employees are usually rehired by the buyer, with terms addressed in the deal
- Often preferred by buyers
- You buy the whole company, as it is
- Existing liabilities, known and unknown, come with it
- Contracts usually stay in place, though some may need consent if ownership changes
- Employees stay with the same company
- Often preferred by sellers, especially for tax reasons
Buyers generally favour asset deals because they can select which assets and liabilities to take on, leaving most old risks with the seller. This protection has limits, however. Certain obligations, such as those involving employees, the environment, taxes, or products, can still attach to the business regardless of how the deal is structured. Sellers, on the other hand, often prefer share deals because the company continues operating without interruption, and an individual seller may qualify for a valuable tax exemption on the sale. A separate GST/HST rule can also allow the buyer and seller to agree that no sales tax is owed at closing, when an entire business is being sold, though the details should be confirmed with an advisor before anyone relies on it.[1]
A client wanted to buy a landscaping company and had first agreed to buy the shares. Partway through, our review turned up an open workers' compensation claim and a lien on some equipment that the seller hadn't mentioned. Instead of walking away, we switched the deal to an asset purchase. That left the claim and the company's liability behind with the seller, and we added a specific promise in the contract that the seller would cover any other pre-closing problems, also known as an indemnity, that surfaced later. The buyer closed on time and never had to deal with either issue.
The Letter of Intent
Before anyone spends serious money on lawyers and accountants, it's worth writing down the big-picture terms in a letter of intent, sometimes called an LOI. Far from a formality, the LOI is the foundation the entire deal is built on. The more thorough you are at this stage, covering the price, the structure, what's included, any financing or diligence conditions, and a rough timeline, the smoother the rest of the deal tends to go. Brokers and M&A advisors typically lead the negotiation of the LOI. If a competent M&A lawyer is involved at this stage, they may suggest a comprehensive LOI questionnaire to make sure every important issue is covered before the letter is signed.
Most LOIs are intended to be non-binding overall, but they can still contain specific provisions, such as confidentiality or exclusivity, that are meant to be legally binding right away. Because of this mix, drafting and reviewing an LOI calls for real care and attention. In the event of dispute, a court looks at the actual words used, the situation around the deal, and how both sides behaved, to decide whether they meant to be legally bound and whether the important terms were already settled. Ontario courts have held people to early agreements before, even when both sides expected to sign more formal paperwork later.[2]
A good letter of intent should say plainly which parts are binding right now, usually things like confidentiality and exclusivity, and which parts still depend on a full agreement later. Its job is to catch the big disagreements early, not to leave the price or the deal-breakers to be fought over for the first time inside the final contract.
Due Diligence
This is the stage where you find out whether the business is really what the seller told you it was. Financial and tax diligence looks at the quality of the earnings, the debts, the cash needed to run the business day to day, and whether the numbers behind any forecast actually hold up.
Legal diligence looks at the company's records and ownership, its major contracts, leases, employees and benefits, pensions, intellectual property, privacy and data security, licences, environmental and regulatory issues, lawsuits, and insurance. Operational diligence asks a simpler question: does the business depend too much on one thing, like the current owner, a single employee, a single customer, or a single supplier?
These operational risks are often the hardest for a buyer to spot on their own, since they rarely show up on a balance sheet. Our Business Exit Audit is built to surface exactly this kind of dependency before it becomes the buyer's problem. Asking a seller to complete one, or running the same review yourself as a buyer, can highlight weak points early enough to address them in price, terms, or conditions of closing.
How deep you go should match the size of the deal, but any red flag deserves a real answer, not a shrug. What you find can lead to a lower price, a working-capital adjustment, money held back until issues are resolved, a specific promise from the seller to cover a known risk, extra insurance, a fix before closing, or a decision to walk away. It's almost always cheaper to catch and deal with a problem before you sign than to fight about it in court afterward.
Financing the Purchase
Very few buyers show up with the full purchase price in cash. Most deals blend a few sources of money: a bank loan, a loan from the seller that gets paid back over time, and sometimes a bonus payment tied to how well the business performs after the sale.
Whenever a seller agrees to finance part of the price through a vendor take-back loan, or VTB, that loan needs security behind it, just like a bank loan would. Security gives the lender a legal claim over specific assets, so that if the buyer stops paying, the lender can seize and sell those assets to recover what's owed. Common forms of security include a general security agreement, which covers most or all of the business's assets, and a specific security interest tied to a single high-value asset, like a piece of equipment or a vehicle. A seller may also ask for a personal guarantee, which is a promise backed by the buyer's own personal assets, like their house or savings, rather than just the assets of the business. That guarantee is often backed by its own security, such as a mortgage registered against the buyer's home or a general security agreement over the buyer's personal assets, so the seller has something concrete to rely on if the guarantee is ever called on. Either way, the seller's advisors and lawyers need to carefully review the buyer's assets to make sure there's enough collateral to satisfy the VTB debt in the event of default.
Before closing, your lawyer should search Ontario's personal property registry to see what's already registered against the seller and its owners, then get written confirmation that any old loans or liens tied to the business will be paid off and removed. Any new security, including the seller's VTB loan, must be properly documented and registered as well. Under Ontario's rules for these kinds of security interests, an unregistered claim can lose out to someone else's claim, and when two lenders are both properly registered, the one who registered first usually wins.[3] This matters most when a bank loan and a seller-financed loan both have security over the same assets. In that case, the bank and the seller typically need a separate agreement, called a priority or subordination agreement, that spells out who gets paid first if the buyer defaults.
The Purchase Agreement
This is the definitive agreement. Once signed, it's what legally binds both sides, spelling out exactly what's being bought, for how much, and what happens if something turns out to be wrong. Ideally, most of the major terms, like price, structure, and the main conditions, have already been worked out in the LOI, so this stage is about turning those terms into precise, enforceable language rather than renegotiating the deal from scratch. Much of the remaining work happens in a few connected pieces: the seller's promises about the state of the business, what happens if one of those promises turns out to be false, and a handful of other provisions that shape how the deal actually plays out.
The seller's promises, often called representations and warranties, are factual statements about things like who owns the company, its financial statements, its taxes, its contracts, its employees, and whether it's followed the law. A separate list of exceptions usually qualifies those statements. These promises help you rely on what you were told, but they're not a substitute for doing your own homework. If a promise turns out to be false, the agreement's indemnity clause decides who pays and how much. The two sides usually negotiate how long a claim can be brought, how a claim gets reported and defended, a minimum dollar amount before a claim counts, a maximum amount the seller has to pay, some carve-outs, and what happens if there was fraud. Some especially important promises, like who owns the company or whether taxes were paid, often get longer or looser rules than everyday business promises.
Three other provisions also do a lot of work in the purchase agreement:
Conditions to closing. These are specific requirements that must be satisfied, such as getting a landlord's consent or securing financing, before either side is obligated to close. If a condition isn't met by the outside date, the deal can usually be delayed or walked away from without penalty.
Covenants. These are promises about how the parties will act, rather than facts about the business as it stands today. Pre-closing covenants often require the seller to keep running the business normally and avoid major decisions without the buyer's consent. Post-closing covenants can include things like helping transfer licences or supporting a smooth handover.
Non-competition and non-solicitation clauses. These restrict the seller from opening a competing business or poaching employees and customers for a set time and area after closing. Without them, a buyer could pay full price for a business only to watch the seller start a rival down the street.
A buyer once came to us about a different deal they'd done years earlier with another lawyer. Back then, to keep the deal moving, they'd accepted the seller's standard 12-month window for bringing claims about most of the seller's promises, without pushing back. Fourteen months after closing, they discovered the seller had known a major customer could cancel its contract at any time, for no reason, and never said so. Because the 12-month window had already closed by a few weeks, the buyer had no way to make a claim under the contract. The lesson isn't just "read your contract." It's that the length of time you have to bring a claim matters as much as the promise itself, and it should match how long it realistically takes for a problem like this to surface.
Closing
Closing is a coordinated exchange, not just a wire transfer. Both sides need to settle the final numbers, hand over the right approvals and documents, register any new security, get old liens released, and confirm that anyone whose permission was needed, like a landlord or a regulator, has actually given it. In an asset deal, some contracts and leases can't be assigned without the other party's sign-off. In a share deal, a change in ownership can sometimes trigger the same kind of requirement. Getting these permissions should usually be a condition of closing, not something to sort out afterward.
Employees need planning too. In an Ontario asset sale, when the buyer takes on the seller's employees, the law can treat their employment as continuous, meaning their past years of service may still count for things like notice periods.[4] The purchase agreement should say who pays for what, like accrued vacation pay, and the buyer should plan out job offers, notices, payroll, and benefits ahead of time rather than assuming a change in ownership resets the clock.
A solid closing checklist also covers the small things that are easy to forget: building keys, passwords, website domains, transferring intellectual property, tax elections, insurance, letting customers and suppliers know, and anything that has to be filed after closing. If anything gets pushed past closing day, make sure someone is responsible for it, with a deadline attached.
Five Common Mistakes
- Signing a letter of intent without being clear on which parts are binding.
- Choosing an asset deal or a share deal before getting proper legal and tax advice.
- Rushing due diligence and hoping red flags will sort themselves out.
- Closing before getting the consents and lien releases you actually need.
- Closing without negotiating real protections into the purchase agreement.
Frequently Asked Questions
Write a letter of intent that spells out the price, the structure, what's included, financing conditions, exclusivity, and the timeline. This gets everyone talking about the same deal before the legal bills start.
An asset purchase usually lets you pick what you're buying and limit which liabilities come with it. A share purchase keeps the company running as-is, which sellers often prefer. The right call depends on your tax situation, the risks in the business, and what you're trying to accomplish, so get legal and tax advice before deciding.
Financials, taxes, corporate records, contracts, leases, employees, intellectual property, licences, compliance, lawsuits, insurance, and how dependent the business is on the current owner or a handful of customers or suppliers.
Often, yes. Contract assignments, leases, licences, and change-of-control clauses can all require someone else's consent. Check for these early so a missing signature doesn't hold up your closing date.
Most deals combine cash, a bank loan, a vendor take-back loan from the seller, and sometimes an earnout tied to performance, with clear terms for security, priority, and what happens if a payment is missed.
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Legal Authorities and Notes
This article gives general information, current to July 20, 2026. It is not legal, tax, accounting, insurance, or investment advice, and it doesn't replace advice about your specific situation. Reading it doesn't create a lawyer-client relationship. Laws, government rules, and tax rates can change, and how they apply depends heavily on the facts. Talk to a qualified Ontario lawyer and tax professional before buying a business, signing a letter of intent, or closing a deal.
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