Can a non-compete bind a seller who only had a small, passive stake and no active role?

Yes, it can, and in some ways such a seller's non-compete sits on firmer statutory ground than one given by a seller who becomes an employee of the purchaser. The Employment Standards Act, 2000 non-compete restrictions, added in 2021, generally prohibit employers from entering non-compete agreements with employees, subject to a business-sale exception and a separate executive exception. That statutory ban is about employer-employee relationships specifically, so a passive minority seller who never becomes an employee of the purchaser is not caught by it in the first place, since there is no employment relationship for the ban to apply to.

That seller's non-compete is instead assessed under ordinary common law principles for a restrictive covenant given as part of a business sale, which Ontario courts already treat considerably more permissively than an employee's covenant, as protecting the goodwill the buyer paid for. The covenant still needs to be reasonable in scope, geography, and duration relative to what that seller's stake in the business actually was, so a passive minority position can support a narrower, but still valid, restriction.