What should be in a share purchase agreement when buying a private company in Ontario?
A share purchase agreement should cover the price and how it is paid, what the seller promises about the company, the conditions that must be met before closing, what each side must do until closing, and what is handed over on closing day. Because you are buying shares, the company stays the same legal entity, so employees' accrued service is generally unaffected. For WSIB, a buyer who acquires share capital takes on the seller's liabilities by law, so the purchase-certificate policy does not apply.
Several clauses are shaped by tax rules. A share purchase is generally not subject to GST/HST. Amounts received for a non-compete are generally included in income, though an election can switch that off for shares sold to an arm's length buyer. If the seller is a non-resident, the buyer may owe 25% of the amount its cost exceeds the certificate limit unless a certificate of compliance is issued, so holdbacks are common.
Indemnity limits and escrow are mainly set by the contract. Very large deals can require advance notice to the Competition Bureau, and foreign buyers face separate thresholds. Have a lawyer review your deal.
Key takeaways
- A share purchase agreement should cover the price, the seller's promises about the company, closing conditions, promises until closing, and closing deliveries.
- Buying shares is generally not subject to GST/HST.
- A buyer of share capital takes on the seller's WSIB liabilities by law, so the purchase-certificate policy does not apply.
- If the seller is a non-resident, the buyer may owe 25% of the amount its cost exceeds the certificate limit unless a certificate of compliance is issued, so a holdback is common.