What Happens When a Buyer Discovers a Problem After Closing an Ontario Business Purchase

You closed the deal, took over the keys, and started running the business — and then something surfaces that nobody mentioned during due diligence. A customer contract that doesn't say what you thought. A piece of equipment under a lien. A tax filing that was never made. A key employee who was quietly planning to leave.

The instinct is often to feel like the deal itself was unfair. Legally, though, the question is narrower and more useful: what does the purchase agreement actually say happens now? Here's how to work through it.

Step 1: Figure Out What Kind of Problem This Actually Is

Not every unwelcome surprise is a legal claim. Sort the problem into one of these buckets first:

• A false statement in the agreement. The seller represented something specific — financial figures, contract status, compliance, ownership of an asset — and it wasn't true. This is a potential breach of representation or warranty.
• A liability that wasn't clearly allocated. Especially in an asset deal, the agreement should say which liabilities the buyer assumed and which stayed with the seller. If the problem falls into the "not assumed" category, it may still be the seller's responsibility.
• Ordinary business risk. Sometimes a customer leaves, a piece of equipment breaks down, or the market shifts. If nothing in the agreement was actually false and no liability was mis-allocated, this is often just the risk that comes with owning a business — not a legal claim against the seller.

Getting this categorization right early saves a lot of wasted effort chasing a claim that doesn't exist, or missing one that does.

Step 2: Check What the Agreement Actually Promised

Pull out the purchase agreement and disclosure schedule and read them again, specifically for the issue you've found:

• Was this specifically disclosed anywhere, even in a schedule you didn't focus on at the time?
• Does a representation or warranty cover this area at all?
• Is there a materiality qualifier or knowledge qualifier that limits what the seller was actually promising?
• What's the survival period for that particular representation — is it still open, or has the window already closed?
• Is there a basket (minimum claim threshold) or a cap on total indemnity exposure that affects whether this is even worth pursuing?

Step 3: Consider How the Deal Was Structured

Whether the seller's original corporation is even a viable target matters:

• In a share sale, the corporation you bought carries its full history — the same legal entity you now own is the one that may have created or inherited the problem, which can complicate who's really "on the other side" of a claim.
• In an asset sale, the seller's corporation is usually still a separate, identifiable party, which can make pursuing a claim more straightforward — provided that entity still exists and has assets or insurance to respond with.

Step 4: Preserve the Evidence and Give Notice

Purchase agreements typically require the buyer to give the seller formal written notice of a claim within specific timeframes, often with reasonable detail about the nature and amount of the loss. Missing this step — even with a legitimate claim — can jeopardize your ability to recover. Document what you found, when you found it, and what it's costing you, before memories fade or records go stale.

Step 5: Decide How to Pursue It

Depending on what the agreement allows and what's actually at stake, options generally include:

1. Direct negotiation with the seller, especially if the relationship is otherwise good and the amount is modest.
2. A formal indemnity claim, drawing on any holdback or escrow set up specifically for this purpose.
3. The agreement's built-in dispute mechanism, such as referral to an independent accountant for a financial disagreement, or arbitration for a broader one.
4. Litigation, where the agreement doesn't provide an adequate remedy or the other side won't engage.

Frequently asked questions