The Key Sections of an Ontario Asset Purchase Agreement, Explained

An asset purchase agreement (APA) is the contract that actually completes an asset-sale business transaction — the letter of intent set the stage, but the APA is where every asset, liability, and risk gets specifically identified and allocated between buyer and seller. If you've never seen one before, the length and structure can feel overwhelming. Here's what each major part is actually for.

What Makes an APA Different

In an asset sale, the buyer acquires specific assets of the business — not the corporation itself — and assumes only the liabilities the parties specifically agree to. That single fact shapes almost every section of the agreement: because nothing transfers automatically, the APA has to identify, asset by asset and liability by liability, exactly what's included and what's staying with the seller. This is the main structural difference from a Share Purchase Agreement, where the corporation (and everything in it) transfers as a whole.

The Anatomy of an Ontario Asset Purchase Agreement

1. Purchase Price and Allocation. States the total price and how it's allocated among the assets being purchased (equipment, inventory, goodwill, and so on). Allocation matters for tax purposes on both sides — this is an area to work through carefully with your accountant, since it affects each party's tax treatment differently.

1. Purchased Assets and Excluded Assets. A specific list (often a schedule) identifying exactly which assets transfer — equipment, inventory, contracts, intellectual property, goodwill, leases — and, just as importantly, which assets the seller is keeping.

1. Assumed Liabilities and Excluded Liabilities. Identifies which specific liabilities the buyer is agreeing to take on and confirms that everything else stays with the seller's corporation. This section does the real work of limiting the buyer's exposure to the seller's past.

1. Representations and Warranties. Statements the seller makes about the business — that it owns the assets being sold, that financial statements are accurate, that there's no undisclosed litigation, and similar assurances — usually qualified by a disclosure schedule that carves out known exceptions.

1. Covenants. Promises about what happens between signing and closing (operating the business in the ordinary course, obtaining necessary consents) and sometimes after closing (non-solicitation of employees or customers, cooperation on transition matters).

1. Conditions to Closing. The specific things that must happen before either party is obligated to close — financing being finalized, landlord consent to a lease assignment being obtained, or a shareholder resolution being passed where the sale involves all or substantially all of the seller corporation's assets.

1. Purchase Price Adjustment. Many APAs include a working-capital adjustment mechanism, comparing an estimated closing statement to a final post-closing statement, so the final price reflects the business's actual position at closing rather than an earlier estimate.

1. Indemnification and Holdback. Sets out how a party can seek compensation if a representation or warranty turns out to be false, or an excluded liability turns into a real cost for the buyer after closing. A holdback or escrow — a portion of the price withheld for a defined period — commonly secures the buyer's indemnity rights.

1. Tax Elections. On a qualifying asset sale, the parties can jointly elect under the Excise Tax Act to have GST/HST not apply, generally where the buyer is acquiring all or substantially all of the property necessary to carry on the business as a business. Whether a specific deal actually qualifies is a fact-specific determination — get accounting or tax-legal advice rather than assuming.

1. General Provisions. Standard "boilerplate" — governing law, notice provisions, dispute resolution, and similar administrative terms — that are easy to skim past but still worth having reviewed, since they govern how the rest of the agreement gets enforced.

A Note on Liabilities: What Doesn't Automatically Transfer

A common misconception is that an asset sale gives the buyer an automatic "clean slate," with no historical liabilities attaching at all. That's mostly true for liabilities the APA doesn't specifically assume — but it's worth knowing that Ontario no longer has a statutory bulk-sales creditor-notice regime (the Bulk Sales Act was repealed in 2017), so buyers today protect themselves against undisclosed seller liabilities through due diligence, representations and warranties, indemnities, and holdbacks built into the APA itself — not through a separate statutory notice-to-creditors process, which no longer exists in Ontario.

Employees, Leases, and Other Third-Party Consents

An APA doesn't operate in isolation — several matters outside the four corners of the document still need to be addressed as part of closing an asset sale.

Employees

Under the Employment Standards Act, 2000, where a business is sold as a going concern and the purchaser hires the seller's employees, that employment is generally deemed not to have been terminated for statutory purposes — meaning prior service with the seller can count toward the employee's entitlements with the purchaser. This continuity generally does not apply if the purchaser hires the employee more than a defined window after the sale or the employee's last day, whichever is earlier. A purchaser has no statutory obligation to hire any of the seller's employees in the first place — but if it does, the APA should address how employee matters are handled.

Leases

Assigning a commercial lease to the buyer generally requires the landlord's consent. Under the Commercial Tenancies Act, where a lease restricts assignment without consent, that consent is deemed not to be unreasonably withheld — unless the lease itself says otherwise. Either way, obtaining that consent is usually a closing condition, not an afterthought.

Trade Names

If the buyer intends to keep operating under the seller's existing business name, that name generally needs to be registered under the Business Names Act once the buyer starts carrying on business under it.

Frequently asked questions