How to Sell a Business in Ontario: Step-by-Step Legal Guide

Selling a business is a sequence of legal and tax decisions, not a single event. Some of those decisions are made months before you sign anything, and some are only due after the deal has closed.

This guide walks through the usual order of events for an Ontario owner: preparing, choosing a structure, getting approvals, negotiating the agreement, closing and filing afterward. The details depend on your facts, so use it to know what to ask, and have a lawyer and accountant confirm how it applies to you.

Step 1: Prepare and choose a structure

Before you approach buyers, gather your corporate records, contracts, leases, employee information and financial statements. Buyers will ask for them, and gaps slow a deal down or reduce the price.

Then decide, with your accountant, whether you will sell shares or assets. In a share sale, an individual seller may be able to use the lifetime capital gains exemption if the shares qualify, and the gain is a capital gain taxed at the one-half inclusion rate. In an asset sale by a corporation, the corporation realizes the gains and recapture, the exemption is not available to the corporation, and the shareholder is taxed again when proceeds are paid out.

If you hope to use the exemption, start checking the qualifying tests early. Some of them look back over the 24 months before the sale, so there may be little you can fix at the last minute.

Step 2: Check approvals and notices

If a corporation sells all or substantially all of its property outside the ordinary course of business, Ontario's Business Corporations Act requires shareholder approval by special resolution. The notice to shareholders must include a copy or summary of the agreement and a statement of dissent rights.

A voting shareholder who disagrees may dissent, follow the statutory procedure and be paid the fair value of their shares. If your shareholders do not all agree, build time for this process into your schedule.

Larger deals may also need to be notified under the Competition Act. The transaction-size threshold is $93 million for 2026, with a combined parties-and-affiliates threshold of $400 million, and most small-business sales fall below these amounts.

Step 3: Negotiate the agreement

The purchase agreement is where most of the legal risk is allocated. These are the points owners most often need help with.

• Price and payment: if you are paid after year-end, you may be able to claim a reserve, but the gain generally must be brought into income over no more than five years, with at least one-fifth included each year. The period extends to ten years when qualifying small business corporation shares are sold to a child resident in Canada.
• Earn-outs: Canadian contract law imposes a duty of honest performance, but no general duty of disclosure, so protections for an earn-out must be written into the agreement. Where the buyer has discretion over costs, pricing or operations, that discretion must be exercised honestly and reasonably in light of the purpose for which it was granted.
• Warranties: the basic limitation period in Ontario is two years from discovery, but a business agreement made on or after October 19, 2006 can vary or exclude it, other than the 15-year ultimate period. This is why agreements often set their own time limits for warranty claims.
• Non-compete: see the next section.

Step 4: Employees, non-competes and GST/HST

When you sell a business and the buyer employs one of your employees, the employee's service with you counts as service with the buyer under the Employment Standards Act, 2000. The buyer is not required to hire your employees, and this protection cannot be contracted out of. It does not apply if the buyer hires the employee more than 13 weeks after the earlier of the employee's last day with you or the day of the sale. In a share sale the employer does not change, so service simply continues.

Ontario has banned non-compete clauses in employment agreements since October 25, 2021. There is an exception for the sale of a business operated as a sole proprietorship or partnership where the seller immediately becomes the buyer's employee and signs a non-compete as part of the sale. There is also an exception for certain executives. A corporate share seller who stays on is not clearly inside the sale-of-business exception, so the covenant is often placed in the share purchase agreement as a commercial term. Whether it is enforceable is worth confirming with a lawyer.

On the GST/HST side, the buyer and seller can jointly elect under the Excise Tax Act so no GST/HST is payable on the supply under the sale agreement, using Form GST44. The buyer must acquire all or substantially all of the property needed to carry on the business, and if the seller is a registrant the buyer must be one too.

Step 5: Closing and filings that follow

Some filings are time-sensitive and tied to the deal. The following table lists several that may apply.

What to do next

• Ask your accountant to model a share sale and an asset sale.
• Confirm whether your shares could qualify for the capital gains exemption.
• Collect corporate records, contracts, leases and employee information.
• Check whether all shareholders will support the sale.
• Have a lawyer review the letter of intent before you sign it.
• Put earn-out, non-compete and warranty terms in writing early.
• Make a calendar of post-closing tax election deadlines.

Frequently asked questions