Buying a Business in Ancaster: Legal Issues to Check First in Ontario

Ancaster is part of the City of Hamilton, and many buyers are drawn to its shops, restaurants, clinics and service businesses. Buying one is not just a price negotiation. You are taking on a lease, staff, tax accounts and sometimes the seller's old problems.

This article walks through the legal questions worth reviewing before you sign. Local licensing and zoning depend on the specific property and business, so those points are best confirmed with the City of Hamilton and a lawyer.

Decide whether you are buying shares or assets

In a share purchase you buy the corporation itself. In an asset purchase you buy selected parts of the business, such as equipment, inventory, the name and goodwill. The choice shapes almost everything else.

In a share sale no new legal entity is created, and the corporation's WSIB account, including any amounts owing, stays with the corporation. The change in share ownership does not affect the tax values of the corporation's assets, and buying shares is generally not subject to GST/HST. A buyer of assets may need a new business number and its own payroll and GST/HST accounts.

Zoning and licensing in Ancaster

Whether a use is allowed at a particular address, and which municipal licences or permits the business needs, depends on the property, the type of business and current City of Hamilton rules. Do not assume the seller's licences or permitted use simply carry over to you.

• Ask the seller which licences and permits the business holds and whether they can be transferred or must be reapplied for.
• Confirm with the City that the current use of the premises is permitted.
• Ask whether any open orders, inspections or complaints exist.
• Have your lawyer make the purchase conditional on the approvals you need.

Read the lease closely

For many small businesses the lease is the most valuable asset. If the lease has a covenant against assigning, subletting or parting with possession without the landlord's consent, it is deemed to say that consent is not to be unreasonably withheld. That protection does not apply if the lease contains an express provision to the contrary.

If the landlord refuses or neglects to consent, the tenant, the assignee or the subtenant can apply to a judge of the Superior Court of Justice, who decides whether consent was unreasonably withheld and can order the assignment permitted. Whether a refusal is unreasonable depends on the facts, so get advice early and make landlord consent a condition of closing.

Search for liens and check the business's status

Ontario's Personal Property Security Registration is a public database that can be searched against an individual debtor, a business debtor or a motor vehicle, one transaction at a time, and it does not cover real property. A buyer of goods sold in the ordinary course of business takes them free of the seller's security interest, but a purchase of a business's assets outside the ordinary course does not get that protection. That is why a search and discharges of any liens matter.

Anyone can search the Ontario Business Registry free for basic information about a business. If you are buying assets, ask the seller about WSIB too. The WSIB says asset buyers should get a purchase certificate, which must be requested before the date of sale.

Employees, franchises and non-competes

• Employees: if you employ the seller's employee, their employment is deemed not terminated, and time worked for the seller counts as time worked for you under the Employment Standards Act, 2000. This does not apply if you hire them more than 13 weeks after the earlier of their last day with the seller and the day of the sale.
• Franchises: if the business is a franchise, the franchisor generally must give you a disclosure document at least 14 days before you sign or pay anything. Some resales by an existing franchisee are exempt, so ask which rules apply.
• Non-competes: since October 25, 2021, employers generally cannot make non-compete agreements with employees, and one made in breach is void. The prohibition does not cover non-compete agreements entered into before that date.
• Non-compete exceptions: the ban does not apply where the seller agrees not to compete as part of the sale and immediately becomes the buyer's employee, or where the employee is an executive, such as a CEO, president or chief financial officer.

What to do next

• Decide whether you are buying shares or assets.
• Get the lease and ask your lawyer about landlord consent.
• Run lien searches and ask for discharges.
• Confirm zoning and licensing with the City of Hamilton.
• Ask about WSIB, payroll and GST/HST accounts.
• Talk to a lawyer and accountant before signing an offer.

Frequently asked questions