Current to July 24, 2026
A share purchase agreement, or SPA, is the contract that governs the sale of a corporation's shares.
- It sets the price, how that price can change, and what has to happen before closing.
- It contains the seller's promises about the business, called representations and warranties, and the disclosure schedules that qualify them.
- It sets out who pays if something turns out to be wrong, through indemnities, caps, and time limits.
- It also covers tax, employees, non-compete promises, closing paperwork, and what each side still owes each other after the deal closes.
For a buyer, the SPA is about risk. For a seller, it is about certainty and knowing when the deal is truly finished.
- In a share sale, the buyer gets the whole corporation, including its contracts, its history, and its liabilities, unless the agreement carves something out.
- The purchase price is only the starting point. Working capital, debt, and cash adjustments often change what actually gets paid.
- A good SPA does more than describe the business. It decides who carries each risk.
- Disclosure schedules are where a lot of the real negotiating happens, because they qualify the seller's promises.
- Buyers usually want broader promises, longer time limits, and stronger protection. Sellers usually want tighter wording, shorter time limits, and firm dollar caps.
- Tax planning can change how much money a seller actually keeps, especially if the shares qualify for the capital gains deduction under the Income Tax Act.
- Employee issues usually cause fewer headaches in a share sale than in an asset sale, where continuity rules under the Employment Standards Act, 2000 come into sharper focus.
- A weak letter of intent often leads to a messy SPA negotiation later, and sometimes creates obligations the parties never meant to sign up for.
Why the SPA Matters More Than the Price
Most business owners fix on one number: the price. That makes sense. But price alone will not tell you whether a deal is actually good.
The share purchase agreement is the document that spells out what is really being sold, which risks stay with the seller, which risks move to the buyer, what has to happen before the money changes hands, what happens if something turns out to be untrue, and what each side still owes the other once closing is done.
In plain terms, the SPA is not just a bill of sale. It is a risk-allocation document. For the buyer, it is about making sure the company they are getting is the company they were promised. For the seller, it is about turning years of work into real proceeds, without leaving an open-ended tail of liability behind them.
Share Purchase vs. Asset Purchase, at the Agreement Level
Before we get into the clauses, it helps to see why a share purchase agreement reads so differently from an asset purchase agreement.
| Issue | Share Purchase | Asset Purchase |
|---|---|---|
| What is being bought | Shares of the corporation | Selected assets, and usually selected liabilities |
| The legal entity | The corporation carries on unchanged | The buyer may use a different entity |
| Contracts and permits | Often stay with the corporation, though change-of-control clauses can still matter | Often need to be formally assigned |
| Employees | Employment usually continues with the same employer | Employee transfer issues are more active |
| Old liabilities | The buyer indirectly inherits the corporation's history | The buyer usually tries to leave more old liabilities behind |
| Tax focus | May benefit the seller, including possible access to the capital gains deduction | Often allows more selective buying and a step-up in tax basis |
This is one reason share sales appeal to sellers. If the shares are qualified small business corporation shares, an individual seller may be able to claim the capital gains deduction under the Income Tax Act, section 110.6(2.1), with the qualifying test set out in section 110.6(1).[1] For buyers, an asset deal often appeals for the opposite reason: more control over which liabilities come along for the ride.
As a contrast, if a deal were structured as a sale of all or substantially all of a corporation's property, rather than a sale of shares, it can trigger shareholder approval requirements under the Business Corporations Act, section 184(3).[2] That is not the rule that governs a typical SPA, but it is one more reason structure matters from the very start.
1. Parties, Shares, and Ownership
The first part of an SPA sounds simple. Who is selling, who is buying, and which shares are changing hands. But this section does real work.
It should name every selling shareholder, the buyer, and the target corporation. It should list the class, the number, and the registered owner of every share being sold. It should say whether any options, warrants, convertible notes, or phantom equity exist. It should confirm whether all issued shares are being purchased, and whether any shareholder approvals or outside consents are needed first.
What the Buyer Wants
The buyer wants certainty that it is getting all of the equity it expects, free of competing claims. An undisclosed shareholder, an old unrecorded transfer, or an option that ripens on closing can hand the buyer a dispute before it has even met the staff.
What the Seller Wants
The seller wants this section complete, but not overcomplicated. If there were old share issuances, informal family planning, or subscription paperwork done years ago and never tidied up, that should be cleaned up before the SPA goes out, not discovered on the tenth draft.
We had a client who was about to sign a share purchase agreement selling one hundred percent of his company. During our review of the minute book, we found an old, unsigned subscription agreement from years earlier that suggested a second person may have been entitled to a small block of shares. Nobody involved in the deal knew about it, including our client, who had simply forgotten.
Had we not caught it, the buyer could have closed the deal, then discovered later that it did not actually own all of the company it thought it bought. We paused the signing, tracked down the other party, and got a signed release and a clean transfer on record before the SPA went out. It added a week to the timeline. It also meant the buyer's certainty in the capitalization section was actually true, not just assumed.
2. Purchase Price and Adjustments
This is where many owners learn that the stated price is not always the amount that shows up on closing day.
The SPA should say what the base purchase price is, whether the deal is cash-free and debt-free, whether shareholder loans are included, repaid, or left outstanding, whether there is a working capital adjustment, whether there is a holdback, escrow, or earnout, and exactly when and how the price gets paid.
If the business was marketed using an enterprise-value number, the SPA has to turn that idea into an actual closing payment. Otherwise, the parties end up arguing about cash, debt, unpaid bonuses, customer deposits, taxes, and transaction costs at the worst possible time, right before closing.
What the Buyer Wants
The buyer wants a precise accounting method, a clear definition of working capital, and a fair way to true it up after closing. Vague wording can mean the buyer overpays, then spends months arguing about something that felt obvious but was never written down.
What the Seller Wants
The seller wants predictability. A price adjustment clause should not become the buyer's second negotiation after the deal has already closed. Sellers should push back on broad, one-sided accounting language, and insist on consistency with how the business has always kept its books, unless there is a real reason to change it.
We had a client who agreed to buy all the shares of a distribution company for what everyone had been calling a debt-free price. Near closing, the buyer's draft SPA defined debt broadly enough to include unpaid management bonuses, a shareholder's credit card balance, old tax arrears, and the seller's own legal fees on the deal.
The buyer said this was standard. Our client said it was never discussed. The real issue was not the concept of debt-free pricing. It was the gap between what the letter of intent said and what the SPA actually defined. We fixed it by attaching a detailed debt schedule that named exactly what counted, and the deal closed on terms our client could live with. Ontario courts can treat a preliminary agreement as binding depending on the wording and how the parties acted, which is exactly why the early paperwork deserves more attention than most owners give it.[3]
3. Closing Conditions
Closing conditions answer a practical question: what has to be true, or completed, before either side has to close the deal?
Typical conditions include the representations still being accurate, usually within a materiality standard, compliance with pre-closing promises, any needed third-party consents, regulatory approvals if they apply, no serious adverse change if that was negotiated, no court order blocking the deal, and delivery of the agreed closing documents.
What the Buyer Wants
The buyer wants real protection if something changes between signing and closing. If a key contract ends, a major customer leaves, or a tax problem surfaces, the buyer should not be forced to close on a worse business than the one it agreed to buy.
What the Seller Wants
The seller wants closing conditions that are objective and limited. Watch for vague "satisfaction" language or broad adverse-change wording that gives the buyer too much room to simply walk away.
4. Representations and Warranties
This is the heart of the SPA. Representations and warranties are the seller's contractual statements about the corporation and the deal. They usually cover incorporation and authority, ownership of shares, financial statements, undisclosed liabilities, tax compliance, contracts, lawsuits, employment matters, intellectual property, privacy compliance, title to assets, real property and leases, insurance, and dealings with related parties.
These clauses matter because they turn assumptions into legal promises.
What the Buyer Wants
The buyer uses these promises to surface risk, and to create a remedy if a fact turns out to be wrong or incomplete. Buyers typically want broader coverage, fewer knowledge qualifiers, and longer time limits for the most fundamental promises.
What the Seller Wants
The seller wants accuracy, not an accidental guarantee of perfection. Sellers should focus on materiality thresholds, knowledge qualifiers where they make sense, consistency with the disclosure schedules, carving out anything the buyer already knew, and separating the truly fundamental promises from ordinary business ones. Watch too for attempts to turn minor administrative slip-ups into full breaches of warranty.
5. Disclosure Schedules
Business owners often underestimate the disclosure schedules. They should not.
If the representations are the promises, the disclosure schedules are the negotiated list of exceptions and context. They may cover contract lists, lawsuits, employee data, leased premises, liens, tax audits, environmental issues, customer concentration, and anything that departs from the literal wording of a promise.
What the Buyer Wants
The buyer should never treat the schedules as paperwork to skim. They are part of the deal, and deserve the same attention as the main agreement.
What the Seller Wants
The seller's job is not to bury bad news. It is to disclose clearly enough that the risk is genuinely shifted. A vague schedule can create the worst possible outcome: enough detail to alarm the buyer, but not enough to protect the seller.
6. Running the Business Before Closing
If there is a gap between signing and closing, the SPA usually controls how the business is run during that time. Common promises include operating in the ordinary course, keeping key contracts and staff, avoiding unusual spending, not issuing new shares or unusual dividends, keeping insurance in place, and giving the buyer reasonable access for final checks and closing preparation.
The Supreme Court of Canada has confirmed that parties to a contract must act honestly with each other in how they perform it. That principle does not remove negotiation or self-interest from the picture, but it matters a great deal when one side is running the business between signing and closing, or reporting on whether the closing conditions have been met.[4]
What the Buyer Wants
The buyer wants to stop value from leaking out of the business and to avoid last-minute surprises.
What the Seller Wants
The seller needs enough room to keep running a real business. If the promises are written too tightly, ordinary decisions can start to look like breaches.
7. Indemnities
If a promise or a covenant is broken, indemnities decide who pays, when, how much, and subject to what limits. This section usually deals with what kinds of losses are covered, baskets and deductibles, dollar caps, fundamental representations, carve-outs for fraud, time limits, third-party claims, notice requirements, control of the defence, and whether the indemnity is the only remedy available.
What the Buyer Wants
The buyer usually wants strong recourse for hidden liabilities, tax problems, and issues that go to the heart of ownership.
What the Seller Wants
The seller usually wants finality. That means short time limits for ordinary promises, a reasonable dollar cap, a real deductible or basket, carve-outs for remote or indirect losses, a duty on the buyer to mitigate its own losses, and clear wording that stops the buyer from recovering twice for the same problem.
We had a client who bought a company's shares, and a few months after closing, the corporation received follow-up questions from the CRA about payroll remittances and sales tax reporting from before the sale. The seller said it was nothing, and pointed out that no formal audit had existed on the day the deal signed. Our client pointed to the tax representation, the covenant requiring notice of material developments, and the indemnity for pre-closing tax liabilities.
The fight was never really about tax law. It came down to wording. The SPA had not clearly said when a CRA inquiry became a "proceeding," how notice had to be given, or who controlled the response. We resolved it, but only after weeks of back and forth that a few extra lines of drafting would have prevented. That is the pattern we see again and again: the expensive dispute is rarely about the big idea. It is about the small detail nobody thought to spell out.
8. Tax Matters
Tax clauses are often where real value is won or lost. A share sale can be significantly better for an individual seller if the shares qualify as qualified small business corporation shares, because the capital gains deduction under section 110.6(2.1) of the Income Tax Act may apply, subject to the conditions in section 110.6(1).[1] That is often a major reason sellers prefer share deals in the first place.
Tax in the SPA is not only about getting a better rate, though. It also covers who is responsible for pre-closing taxes, who files what, cooperation on audits, tax elections, treatment of refunds, who pays the transaction costs, and how shareholder loans, bonuses, and dividends around closing are handled.
What the Buyer Wants
The buyer wants clear responsibility for pre-closing tax periods, and full access to the information it needs to manage or defend tax issues after closing.
What the Seller Wants
The seller wants to avoid open-ended entanglement after closing, and should be cautious about broad tax indemnities that end up insuring the buyer against every historical tax risk, no matter how remote.
9. Employees
In a share purchase, the legal employer usually stays the same: the corporation whose shares are being sold. That often makes the employee transition smoother than in an asset deal.
Even so, a buyer should still look at key employee dependence, change-of-control payments, bonus plans, termination exposure, independent contractor misclassification risk, workplace investigations, whether restrictive covenants are enforceable, and pension or benefit obligations.
It helps to compare share deals with asset deals here. Under section 9(1) of the Employment Standards Act, 2000, if a buyer takes over a business and hires the seller's employee, that employment may be treated as continuous for ESA purposes, though section 9(2) creates an exception where the gap in employment runs past thirteen weeks.[5] That rule shows up more visibly in asset deals, but it is worth understanding when comparing the two structures.
What the Buyer Wants
The buyer should identify who actually drives the revenue, the relationships, and the know-how in the business.
What the Seller Wants
The seller should be realistic about retention risk. If the business's value rests on two people who could walk away after closing, the buyer will notice, and will price for it.
10. Restrictive Covenants
Share deals often include promises from the seller not to compete, especially where the seller is active in the business and receiving significant value on closing. These typically cover non-competition, not soliciting customers, not soliciting employees, and not otherwise interfering with the business.
What the Buyer Wants
The buyer wants real protection for the goodwill it just paid for. Buying shares at a premium, only to have the seller open a competing shop next door, is not something any buyer will accept.
What the Seller Wants
The seller should negotiate the scope carefully: how long the promise lasts, where it applies, which business lines it covers, who exactly is restricted, whether passive investment is carved out, and whether the wording reaches further than it actually needs to. If the seller stays on as an employee after closing, Ontario's statutory restrictions on non-competes also need attention, including the sale-of-business exception found in section 67.2(3) of the Employment Standards Act, 2000.[5]
We had a client selling his business who was asked to sign a five-year, province-wide non-compete covering "any business the corporation has ever considered entering." He wanted to retire, but he also wanted to keep the option of consulting in his industry down the road. The buyer's first draft would have blocked almost anything he might reasonably want to do.
We pushed back on the scope. We narrowed the restriction to the actual services the business provided, shortened the term, and added a specific carve-out for consulting work that did not compete for the same customers. The buyer still got meaningful protection for what it paid for. Our client kept a real option for his future. An overreaching non-compete does not just risk a tougher negotiation. It also risks being struck down entirely if it ever ends up in front of a judge, which protects nobody.
11. Closing Deliveries
The SPA should attach a practical checklist of what actually gets delivered at closing: share certificates and transfers, resignations of directors and officers, corporate approvals, releases of shareholder loans where applicable, employment or consulting agreements, restrictive covenant agreements, third-party consents, payoff letters and discharges, escrow agreements, and the funds-flow memorandum that tracks where the money actually goes.
This is where deals either feel smooth, or feel chaotic.
What the Buyer Wants
The buyer wants no uncertainty about what it needs in order to actually own and control the business on day one.
What the Seller Wants
The seller wants a closing list that is complete but realistic. Last-minute requests for "customary deliverables" that were never identified in advance are a common source of frustration.
12. What Happens After Closing
Many owners talk about closing as if it ends everything. Usually, it does not.
Common post-closing obligations include working capital true-ups, tax cooperation, earnout reporting, release of escrowed money, transition assistance, access to books and records, collection or remittance procedures, and confidentiality or non-disparagement promises.
A well-drafted SPA assumes the parties may still need each other after closing, even if neither one would prefer that to be true.
SPA Review Grid: What Each Side Usually Wants
| Clause | Buyer Prefers | Seller Prefers |
|---|---|---|
| Shares and ownership | All issued shares, free and clear, with a strong ownership promise | Limited to the shares actually owned by the seller |
| Price and adjustments | Detailed debt, cash, and working capital mechanics | Fixed economics or narrow adjustment wording |
| Closing conditions | Broad conditions tied to ongoing compliance | Objective, limited conditions |
| Representations | Broad, few qualifiers, longer time limits | Narrower, qualified, shorter time limits |
| Disclosure schedules | Detailed, covering the whole transaction | Sufficient, without reopening the economics |
| Indemnities | Broad losses covered, real recourse | Caps, baskets, shorter time limits, clear exclusions |
| Tax | Seller covers pre-closing taxes | Shared process, with defined limits |
| Employees and covenants | Retention and goodwill protection | Narrow, reasonable post-closing restrictions |
Five Common Mistakes
- “Treating the purchase price as the whole deal, instead of the starting point.”
- “Letting the disclosure schedules become an afterthought.”
- “Agreeing to broad indemnity language without understanding the time limits, caps, and baskets behind it.”
- “Using vague debt, cash, and working capital definitions that explode into a dispute at closing.”
- “Signing a soft letter of intent, then being surprised when the hard SPA negotiation gets contentious.”
Ontario FAQs
No. A letter of intent usually sets out the core business terms and the process going forward. The share purchase agreement is the final, binding contract. Take the letter of intent seriously anyway, since parts of it can still be enforced depending on the wording and how the parties behaved.[3]
A share sale can be cleaner and more tax-friendly for the seller. In the right circumstances, an individual seller may claim the capital gains deduction if the shares qualify under section 110.6 of the Income Tax Act.[1]
In a share purchase, the corporation keeps its full history. The buyer is stepping into a company that may carry old tax, employment, contract, or compliance problems, so strong representations and indemnities matter more.
Usually yes, because the employer entity does not change. That often makes the transition smoother than in an asset sale. Employment agreements, bonus plans, and change-of-control rights still need a careful review.
Usually some mix of price adjustments, representations and warranties, disclosure schedules, and the limits on indemnities. Those clauses decide whether the deal still feels fair when something goes wrong later.
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This article gives general information about share purchase agreements in Ontario, current to July 24, 2026. It is not legal, tax, or accounting advice, and it does not replace advice about your specific transaction. Reading it does not create a lawyer-client relationship. Share purchase agreements are highly deal-specific. Get advice from a qualified Ontario lawyer, and your tax and financial advisors, on your particular transaction structure, risks, approvals, employment issues, and post-closing obligations before you rely on this article or complete a deal.
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