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BUSINESS LAW GUIDE
Buying or Selling a Business in Ontario
A practical guide to deal structure, due diligence, purchase agreements and the decisions that move a business transaction from interest to closing.
Buying or selling a business is not one transaction document. It is a sequence of decisions about what is being sold, what risks are staying behind, what the buyer is relying on and what must happen before the deal can close.
Prepared by Tatyana Trusz, Trusz Law • Updated July 2026 • 14 min read
QUICK ANSWER
What is the first decision in a business sale?
The first major legal decision is usually whether the buyer is acquiring the shares of the corporation or selected assets of the business. That choice affects what changes hands, what liabilities remain with the operating entity, which contracts or licences may need consent, how employees are handled and how the transaction is taxed.
After the structure is identified, the deal typically moves through a letter of intent or term sheet, due diligence, negotiation of a purchase agreement, satisfaction of closing conditions and the closing itself. The strongest transactions make the commercial deal clear early enough that the legal documents can accurately carry it out.
IN THIS GUIDE
RELATED BUSINESS LAW
PLANNING A TRANSACTION?
Get clear on the deal before the documents become the deal.
Talk through structure, timing, risk and the terms that matter before signing something difficult to unwind.
THE TRANSACTION
What are you actually buying or selling?
A business may feel like one thing to the owner: a name, customers, employees, inventory, systems, reputation and years of work. Legally, however, a transaction has to identify exactly what is changing hands.
In a share purchase, the buyer acquires shares of the corporation. The corporation itself continues to own its assets, employ its employees and remain party to its contracts, subject to any change-of-control provisions, consents and other transaction requirements.
In an asset purchase, the buyer acquires specifically identified business assets and assumes only the liabilities the agreement says it will assume, subject to applicable law. The seller’s corporation generally remains in place unless separate steps are later taken to reorganize or wind it up.
The choice is not just a tax question. It affects contracts, licences, employees, leases, permits, privacy obligations, financing, due diligence and how risk is allocated between the parties.
KEY TAKEAWAYS
At a glance
- The first structural question is usually whether the transaction is a share purchase or an asset purchase.
- A letter of intent can help align the parties before they spend heavily on due diligence and definitive agreements.
- Due diligence should test the assumptions behind the price—not simply collect documents.
- The purchase agreement allocates risk through price terms, representations, warranties, covenants, conditions and indemnities.
- Employees, leases, key contracts, licences and financing can all affect whether the deal can close as planned.
- Tax, accounting and legal advice should be coordinated early because deal structure can affect each area.
DEAL STRUCTURE
Asset purchase or share purchase?
Buyers and sellers often begin with different preferences, but there is no universally better structure. The right approach depends on the business, the liabilities, the contracts and licences, the tax consequences and the practical ability to transfer what the buyer needs.
| Question | Asset purchase | Share purchase |
|---|---|---|
| What does the buyer acquire? | Specified assets, rights and assumed liabilities identified in the agreement | The seller’s shares in the corporation |
| What happens to the operating entity? | The seller entity remains separate from the assets transferred | The corporation continues; ownership of its shares changes |
| Contracts and licences | May need assignment, consent, re-issuance or a new application | The same entity remains party, but change-of-control or regulatory requirements may still apply |
| Liability focus | The agreement identifies assumed and excluded liabilities, subject to law | The corporation generally continues with its existing obligations and history |
| Due diligence emphasis | Title to assets, transferability and assumed obligations | The entire corporate entity, its records, contracts, liabilities and compliance history |
The parties should also obtain tax advice before committing to a structure. A transaction that works commercially may create different tax results for the buyer and seller, and changing the structure late can affect price and timing.
DIFFERENT SIDES OF THE SAME DEAL
What does the buyer care about—and what does the seller care about?
The buyer is asking: what am I really getting?
The buyer usually wants to confirm that the business has the customers, revenue, assets, rights, people and approvals that support the purchase price. The buyer also wants to understand what liabilities could survive closing or reduce the value of the acquisition.
That is why buyers focus heavily on due diligence, closing conditions, representations and warranties, indemnities, purchase-price adjustments and holdbacks or other security where appropriate.
The seller is asking: when is the deal actually done?
The seller usually wants certainty about price, payment, timing and the limits of post-closing exposure. A seller should pay close attention to conditions the buyer can use to walk away, broad promises about the business, long survival periods, indemnity exposure, restrictive covenants and obligations to remain involved after closing.
A strong deal balances the buyer’s need to investigate with the seller’s need for a clear path to completion.
THE DEAL PROCESS
How does buying or selling a business usually work?
01 Prepare before going to market or making an offer
A seller should organize corporate records, contracts, financial information, employee information, intellectual property and known liabilities. A buyer should identify acquisition goals, financing limits, deal-breakers and the advisors needed to evaluate the target.
02 Sign a confidentiality agreement
Before sensitive information is shared, the parties often use a non-disclosure or confidentiality agreement that addresses permitted use, disclosure and return or destruction of information.
03 Negotiate a letter of intent or term sheet
The letter of intent can summarize price, structure, payment, exclusivity, due diligence, key conditions and the expected timeline. Some terms may be expressly binding while the main transaction terms remain non-binding until definitive agreements are signed.
04 Conduct due diligence
The buyer reviews the business in detail. The findings may confirm the deal, change the price, create new closing conditions or identify issues that need to be fixed before closing.
05 Negotiate the purchase agreement
The definitive agreement describes exactly what is being sold, how and when the price is paid, what each party is promising, what must happen before closing and how post-closing claims are handled.
06 Obtain consents, financing and approvals
Landlords, lenders, regulators, customers, suppliers or other counterparties may need to consent. The buyer may also need financing, new registrations, licences or insurance in place.
07 Close the transaction
Closing may involve funds flow, share or asset transfers, releases, resignations, assignments, new agreements, corporate resolutions and delivery of other closing documents.
08 Complete post-closing work
Some obligations continue after the closing date: purchase-price adjustments, transition services, earn-outs, retained funds, tax elections, employee integration or agreed follow-up filings.
DUE DILIGENCE
What should a buyer investigate before closing?
1. Corporate ownership and authority
Review the corporation’s articles, by-laws, shareholder agreements, minute book, share records, ownership changes and approvals. The buyer should understand who owns the business and whether the seller has authority to complete the transaction.
2. Financial and tax information
Financial statements, tax returns, debt, working capital, accounts receivable, unusual expenses and contingent obligations help test the assumptions behind the valuation. The buyer’s accountant and tax advisor should be involved early enough to influence structure and price mechanics.
3. Material contracts and customer relationships
Review major customer, supplier, distribution, franchise, licensing, software and service agreements. Important questions include term, renewal, termination, exclusivity, assignment and change-of-control rights.
4. Employees and contractors
Identify who works in the business, on what terms, and whether there are outstanding compensation, vacation, bonus, commission, termination or classification issues. Key people may also have confidentiality, non-solicitation or intellectual property obligations that should be reviewed.
5. Real estate and leases
A location may be essential to the value of the business. The buyer should understand rent, renewal rights, additional costs, repair obligations, defaults, assignment rights, landlord consent and any personal guarantees.
6. Intellectual property and digital assets
Confirm ownership and control of trademarks, domains, social accounts, websites, software, source code, customer data and other important intangible assets. A company should not be assumed to own intellectual property simply because it paid someone to create it.
7. Licences, permits and regulatory approvals
Some approvals cannot simply be transferred to a buyer. The transaction structure may trigger notice, consent, a new application or a change-of-control review. This should be identified early because regulatory timing can control the closing timeline.
8. Litigation, complaints and compliance history
Existing claims are only part of the picture. Review threatened disputes, customer complaints, regulatory issues, privacy incidents and other matters that could become liabilities after closing.
9. Assets, title and security interests
For an asset transaction, confirm what the seller owns, what is leased, what is financed and what may be subject to registered security interests. Ontario’s Personal Property Security Registration system is a public database used to register and search security interests against personal property.
10. Privacy, data and technology
Where customer, employee or user data is part of the business, the parties should consider what information can be disclosed during due diligence, what can be transferred at closing and what contractual or statutory obligations apply.
11. Insurance and risk history
Review material policies, claims history and whether coverage will continue after a change of ownership. The buyer may need new coverage effective at closing.
12. The owner’s role after closing
If the seller is critical to customer relationships, know-how or operations, the parties should be clear about transition services, employment, consulting, training, introductions and how long the seller is expected to remain involved.
“A good transaction does not eliminate every risk. It makes clear which risks were investigated, which were priced into the deal and which party agreed to carry them.”
— Trusz Law
THE DEFINITIVE AGREEMENT
What does the business purchase agreement need to cover?
Purchase price and payment.
Is the price paid entirely at closing? Is there vendor financing, an earn-out, a holdback or a post-closing adjustment? The agreement should explain both the amount and the mechanics.
Exactly what is being sold.
In an asset deal, the purchased and excluded assets should be identified. In a share deal, the shares and capitalization should be clear.
Assumed and excluded liabilities.
The parties should understand which obligations the buyer is taking on and which remain the seller’s responsibility, subject to applicable law.
Representations and warranties.
These are factual statements about the business, the seller, the buyer and the transaction. They are not boilerplate. They shape the buyer’s reliance and the seller’s potential exposure.
Disclosure schedules.
The schedules qualify and support the representations. A carefully prepared disclosure process is often as important as the wording of the representation itself.
Covenants before and after closing.
These may address how the business is operated before closing, access to information, efforts to obtain consents, transition assistance and other ongoing obligations.
Conditions to closing.
The agreement should identify what must happen before either party is required to close, such as financing, approvals, consents or the absence of specified adverse events.
Indemnities and claim procedures.
The parties should understand what kinds of losses can be claimed, time limits, financial thresholds or caps, security for claims and the process for third-party disputes.
Restrictive covenants.
A buyer may seek non-competition or non-solicitation protection connected to the goodwill being acquired. These clauses should be carefully tailored to the transaction and applicable law.
Termination rights and deal failure.
The agreement should explain what happens if the conditions are not met, the outside date passes or a party breaches before closing.
PEOPLE & OPERATIONS
What happens to employees, leases and the operating business?
Employees
Employee treatment depends on the deal structure, the transaction documents and employment law. Ontario’s Employment Standards Act includes continuity-of-employment rules where a business or part of a business is sold and the purchaser employs an employee of the seller, subject to the statutory rules and exceptions.
The parties should decide who will communicate with employees, whether offers or notices are needed, how accrued obligations are allocated and whether key employees need new arrangements.
Leases
A business cannot assume that a lease will simply follow the transaction. Review assignment, change-of-control, consent, default and guarantee provisions early. A landlord’s process can affect both timing and leverage.
Key contracts
A customer or supplier relationship may be a major part of the business’s value, but the contract may restrict assignment or contain a change-of-control provision. Consent requirements should be identified before the parties assume the relationship will continue.
Licences and permits
Regulated businesses may have approvals tied to a person, entity, premises or ownership structure. The buyer should determine whether the licence continues, requires notice, needs approval or must be replaced before choosing the transaction structure.
GST/HST on an asset sale
In some qualifying sales of a business or part of a business, the parties may be able to make a joint election under section 167 of the Excise Tax Act so GST/HST does not apply to certain transferred assets. The election has eligibility conditions and exceptions, so the transaction should be reviewed with tax advisors rather than assuming the election is available.
COMMON TRANSACTION MISTAKES
Problems that are easier to prevent before closing
Signing a letter of intent without understanding which terms are binding.
Exclusivity, confidentiality, costs and other provisions may be intended to have legal effect even where the main deal remains subject to a final agreement.
Choosing asset or share structure only on headline price.
The structure affects tax, liability, contracts, employees, licences and the practical ability to transfer the business.
Treating due diligence as a checklist.
The purpose is to test whether the business matches the buyer’s assumptions and whether identified problems should change price, terms or the decision to proceed.
Leaving key consents until the week of closing.
Landlords, lenders, regulators and major counterparties can control timing.
Using vague earn-out terms.
If part of the price depends on future performance, the agreement should address calculation, accounting practices, control of the business and information rights.
Failing to plan the handover.
Customer introductions, passwords, inventory, records, keys, domains, accounts and operational know-how can matter as much as signature pages.
Assuming the seller is finished at closing.
Indemnities, adjustments, restrictive covenants, transition obligations and deferred payments may continue long after the closing date.
HOW TRUSZ LAW CAN HELP
Move the deal forward without losing sight of what the business is worth to you.
Trusz Law helps Ontario buyers and sellers navigate privately held business transactions from early structure discussions through closing.
Depending on the deal, that may include confidentiality agreements, letters of intent, legal due diligence, asset or share purchase agreements, disclosure schedules, corporate approvals, closing documents and coordination with accountants, lenders and other advisors.
The goal is to keep the legal work connected to the commercial transaction: what is changing hands, what has to be true for the deal to work and what risks each party is prepared to carry after closing.
FREQUENTLY ASKED QUESTIONS
Business purchase and sale questions people often ask
What is the difference between buying the assets and buying the shares of a business?
In an asset purchase, the buyer acquires specified assets and assumes identified liabilities, subject to applicable law. In a share purchase, the buyer acquires ownership of the corporation itself; the corporation generally continues to own the same assets and remain subject to its existing obligations. The better structure depends on tax, liability, contracts, licences and practical transfer issues.
Do I need a letter of intent before buying or selling a business?
Not every transaction uses one, but a letter of intent can help the parties align on structure, price, payment, due diligence, exclusivity and timing before negotiating the definitive agreement. It should clearly distinguish terms intended to be binding from terms that remain subject to a final contract.
How long does it take to buy or sell a business?
There is no standard timeline. A straightforward private transaction may move quickly, while a deal involving financing, landlords, regulatory approvals, extensive due diligence or complex negotiations can take much longer. The letter of intent and transaction plan should identify the key dependencies early.
What is due diligence when buying a business?
Due diligence is the buyer’s investigation of the business before closing. It commonly covers corporate records, financial and tax information, contracts, employees, leases, intellectual property, licences, litigation, assets, debt and security interests. The purpose is to test the assumptions behind the price and transaction terms.
Can a buyer take over the seller’s lease?
Possibly, but the lease must be reviewed. An asset transfer may require assignment and landlord consent. A share sale may still trigger change-of-control or other provisions. The lease, any guarantees and the landlord’s consent process should be reviewed early because the location may be essential to the business.
What happens to employees when a business is sold in Ontario?
The answer depends on the deal structure and facts. Ontario’s Employment Standards Act contains continuity rules where a business or part of a business is sold and the buyer employs an employee of the seller, subject to statutory conditions and exceptions. The parties should obtain employment advice on offers, notices, accrued obligations and allocation of responsibility.
Can GST/HST be avoided on the sale of a business?
In some qualifying asset transactions, the parties may jointly elect under section 167 of the Excise Tax Act so GST/HST does not apply to certain transferred property. The election has conditions and exceptions and is not available for every transaction. The parties should confirm eligibility with their tax advisors.
What is a holdback in a business sale?
A holdback is part of the purchase price that is retained for a period after closing to address a defined purpose, such as a working-capital adjustment, identified risk or potential indemnity claims. The agreement should specify the amount, who holds it, when it is released and how disputes are handled.
What is an earn-out?
An earn-out makes part of the purchase price dependent on the business achieving agreed results after closing. Because the buyer may control the business during the earn-out period, the agreement should carefully address the formula, accounting rules, access to information and how the business may be operated.
When should I speak with a lawyer about buying or selling a business?
Ideally, before signing the letter of intent or making commitments on deal structure. Early legal input can help identify whether the proposed terms create transfer, liability, financing or closing issues that will be harder to fix after the parties have already agreed on price.
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ABOUT THIS RESOURCE
Prepared by Tatyana Trusz, Trusz Law. This resource is for general information only and is not legal, tax or accounting advice. Business transactions depend on the specific deal structure, governing documents, applicable law and tax circumstances. Last reviewed July 2026.
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Start with what is being sold, what the price assumes and what has to happen before the transaction can close.
