- Buying a business is a sequence: confidentiality, investigation, negotiation, a written agreement, closing and then follow-up filings.
- Ask for a WSIB purchase certificate before the sale date, because without a valid one the WSIB may hold you liable for the seller's amounts owing.
- A GST/HST section 167 election can remove GST/HST on the sale, but only if you acquire all or substantially all of the property needed to run the business.
- Search for liens against the seller's assets before you pay.
Buying a business can feel like a pile of unfamiliar tasks arriving at once. It is easier when you see the order. Most purchases move from a first conversation to a confidentiality agreement, then to investigation, negotiation, a written agreement and closing day.
This guide walks through that order in plain language. It explains who is usually involved and what to do at each stage. Every deal is different, so treat it as a map and not as advice on your own purchase.
Step 1: Decide what you are buying
Before anything else, work out what you actually want to own. In an asset purchase you buy selected items such as equipment, inventory, the name, customer lists and the lease. In a share purchase you buy the company itself, with everything it has done and owes. The choice affects risk, tax and paperwork, so it is worth discussing with a lawyer and an accountant early.
Also decide your budget and how you will pay. Some buyers use their own funds, some use a bank, and some ask the seller to carry part of the price through a vendor take-back loan. Each route brings its own documents.
Step 2: Sign a confidentiality agreement and start investigating
Sellers rarely share financial records or customer details until you sign a non-disclosure agreement. Privacy law is one reason these agreements have standard terms. Federal privacy law lets parties to a prospective deal use and disclose personal information without consent if an agreement requires the recipient to use it only for the transaction, protect it with appropriate safeguards, and return or destroy it if the deal does not go ahead.
Investigation is usually called due diligence. It means checking that what the seller says is true. Typical items are:
- Financial statements and tax filings for several years
- Contracts with customers, suppliers and employees
- The lease and any landlord conditions
- Licences, permits and insurance
- Any claims, disputes or debts
- Liens registered against the seller's assets
For liens, Ontario's Access Now service lets you search the Personal Property Security Registration system against a seller's assets. Your lawyer can run and interpret this search.
Step 3: Negotiate the price and the key terms
Many buyers start with a letter of intent that sets out price and main terms before the full agreement is drafted. How the price is divided among assets matters for tax. CRA says to use the individual asset prices in the sale agreement if they are set out and reasonable. If they are not, the price is allocated to each asset at fair market value, then to inventory, with any remainder going to goodwill in Class 14.1.
If the seller will finance part of the price, the interest rate must stay lawful. The Criminal Code sets a criminal rate of interest at an annual percentage rate above 35 per cent, and charging above it is an offence. Whether any exemptions apply to a commercial loan is a question for your lawyer.
You may also want the seller to agree not to compete. Ontario's Employment Standards Act, 2000 prohibits employers from entering into non-competes with employees. There is an exception where the business or part of it is sold, the seller becomes the buyer's employee, and the non-compete is agreed as part of the sale. How the exception applies to your facts is worth confirming with a lawyer.
Step 4: Sign the purchase agreement and prepare to close
The purchase agreement is the main document. It lists what is sold, the price, promises (called representations and warranties) by the seller, conditions that must be met before closing, and what happens if something goes wrong. Your lawyer drafts or reviews it and usually prepares closing documents too.
Several tasks should be done before closing day. The table shows who is usually involved.
| Task | Who usually helps | Why it matters |
|---|---|---|
| Request WSIB purchase certificate | Lawyer or buyer | Without a valid one, the WSIB may hold the buyer liable for amounts the vendor owes up to the sale date |
| GST/HST section 167 election | Accountant and lawyer | Lets buyer and seller jointly elect for no GST/HST on the sale, on Form GST44 |
| Lien search | Lawyer | Shows registered claims against the seller's assets |
| Lease assignment or new lease | Lawyer | Keeps the business's location secure |
Closing day and after
On closing day the price is paid and ownership documents are exchanged. Then the follow-up begins. You should update the CRA's GST/HST owner information, including the name and SIN of at least one owner, director or partner and the business activity. You should also check whether you need a new business number or payroll account. Inventory you acquire is treated as goods for resale and included in cost of goods sold.
What to do next
- List what you want to buy and how you plan to pay
- Line up a lawyer and an accountant before you sign anything
- Ask for a confidentiality agreement before receiving records
- Set a due diligence checklist and a lien search
- Ask your lawyer about the WSIB certificate and the GST/HST election timing
- Confirm the lease can be assigned or replaced
Frequently asked questions
How long does it take to buy a business?
It varies with the size of the business, financing and what due diligence turns up. Timing can also be affected by third-party approvals such as a landlord. Your lawyer can give a realistic timeline once the deal is described.
Do I need a WSIB purchase certificate?
The WSIB issues purchase certificates to verify that a company selling, leasing or transferring a business has coverage. If you do not get a valid one, the WSIB says it may hold you liable for all amounts the vendor owes up to the sale date. You must request it before the sale date.
How long is a WSIB purchase certificate good for?
It is valid for 30 days from the issue date printed on it. If closing does not happen in that period, you need to request a new certificate.
Do I pay GST/HST when I buy a business?
Not always. 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, using Form GST44. The buyer must acquire all or substantially all of the property needed to carry on the business, and the election cannot be used if the seller is a registrant and the buyer is not.
Sources
- Ontario.ca – Your guide to the ESA: Non-compete agreements — ontario.ca
- CRA – Buying a business — canada.ca
- CRA – Buying a business (business registration) — canada.ca
- WSIB – Buying or selling your business — wsib.ca
- Justice Laws – PIPEDA s. 7.2 — Justice Laws (federal)
- Justice Laws – Criminal Code s. 347 — Justice Laws (federal)
- Ontario.ca – Register or search on Access Now — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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