Buying a Business in Ontario: What Buyers Need to Know

If you are thinking about buying an Ontario business, you are probably weighing price, risk and how much work the seller's past will create for you. The legal side is manageable when you know what to look for.

This overview covers deal structures, the main legal and tax issues, the documents and the professionals who normally help. It is general information, not a substitute for advice on a specific deal.

Asset purchase or share purchase

In an asset purchase, you choose what you buy, such as equipment, inventory, goodwill, the business name and contracts. Anything not listed stays with the seller. In a share purchase, you buy the company, so you inherit its history, including contracts, claims and tax positions.

The right structure depends on tax, risk and the seller's wishes, so it is worth discussing with a lawyer and an accountant before offers are made.

Legal risks buyers should check

Some risks are easy to miss. In an asset purchase, the WSIB says it may hold a buyer liable for all amounts the vendor owes up to the sale date if the buyer does not obtain a valid purchase certificate. The certificate must be requested before the sale date and lasts 30 days from the issue date printed on it.

Liens are another risk. Ontario's Access Now service lets you search the Personal Property Security Registration system for liens against a seller's assets.

Other points to review, depending on the deal:

• Whether the lease can be assigned and on what terms
• Employee contracts and what happens to staff
• Licences and permits needed to operate
• Pending disputes or complaints
• The accuracy of the financial records

Non-competes, privacy and competition law

Buyers often want the seller to stay out of the same market. The Employment Standards Act, 2000 prohibits employers from entering into employment contracts or other agreements that contain a non-compete. The ban took effect on October 25, 2021. A sale-of-business exception applies where there is a sale or lease of a business or part of one, the seller becomes the buyer's employee, and the non-compete is agreed as part of the sale. The ESA also does not prohibit non-competes with executives such as a CEO, president, CFO or COO. Whether a particular clause is allowed and enforceable is a question to confirm with a lawyer.

Privacy matters too. Federal law allows parties to a prospective transaction to use and disclose personal information without consent if an agreement limits use to the deal, requires safeguards, and requires return or destruction if the deal does not proceed. After closing, the information must be needed to carry on the business and one party must notify the individuals within a reasonable time. How this applies to your customer or employee records depends on your situation, so it is worth confirming with a lawyer.

For competition law, the 2026 pre-merger notification thresholds are a $93 million transaction-size threshold and a $400 million party-size threshold. Most small-business purchases fall well below these.

Tax points that shape the deal

On GST/HST, buyer and seller can jointly elect under section 167 so that no GST/HST is payable on the sale of a business or part of one. The buyer must acquire all or substantially all, at least 90 per cent, of the property needed to carry on the business. The election cannot be used if the seller is a registrant and the buyer is not. GST/HST can still apply to certain services, leases or licences.

The form must be filed on or before the day the buyer's GST/HST return is due for the first reporting period in which GST/HST would otherwise have been payable. The Excise Tax Act also lets the Minister allow a later date on application.

For income tax, how the price is split matters. CRA says to use the asset prices in the agreement if they are set out and reasonable, and otherwise to allocate at fair market value, then to inventory, with the remainder going to goodwill in Class 14.1. Other tax issues, including the seller's side of the deal, are best reviewed with an accountant.

Documents and professionals

A typical purchase involves a confidentiality agreement, a letter of intent, the purchase agreement, a lease assignment or new lease, closing documents, and any financing or vendor take-back paperwork. If the seller finances part of the price, remember the criminal rate of interest is an annual percentage rate above 35 per cent.

A lawyer handles agreements, searches and closing. An accountant reviews financials and tax structure. A lender, insurance broker and sometimes a business broker may also be involved.

What to do next

• Decide whether you prefer an asset or share purchase and why
• Book time with a lawyer and accountant before making an offer
• Gather the documents you will ask the seller for
• Plan for the WSIB certificate, lien search and GST/HST election
• Read the lease and any conditions the landlord may set

Frequently asked questions