Am I Liable for the Company's Hidden Debts if I Buy Its Shares in Ontario?
Yes, you generally take on the company's hidden debts when you buy its shares, because the company itself does not change; you simply become its owner. Its liability for unremitted payroll deductions stays with it as it was, and directors at the time of the failure are jointly and severally liable with it, unless a director shows reasonable care, diligence and skill. For WSIB purposes, the acquirer in a share purchase takes on the seller's liabilities by law.
Due diligence means investigating the company before you close, including a lien search through ServiceOntario's Access Now, which checks registered security interests against personal property but not real property. Representations and warranties are the seller's written statements about the company, and an indemnity is the seller's promise to cover you if they prove wrong or a past liability surfaces. How much protection you get depends on what you negotiate and whether the seller can pay.
Tax history changes too. The company's taxation year is deemed to end immediately before an acquisition of control, and net capital losses from earlier years cannot be deducted afterwards. Business losses can still be used if that business is carried on for profit or with a reasonable expectation of profit.
Key takeaways
- In a share purchase the company stays the same, so its own liability for unremitted payroll deductions stays with it, and for WSIB purposes the acquirer takes on the seller's liabilities by law.
- Due diligence includes a lien search through ServiceOntario's Access Now, which covers personal property but not real property.
- Representations, warranties and an indemnity are negotiated protections, and their value depends on the wording and on the seller's ability to pay.
- An acquisition of control ends the company's taxation year and stops earlier net capital losses from being deducted.