Is a Letter of Intent Binding When Buying a Business in Nova Scotia?

You have been handed a letter of intent for the purchase or sale of a Nova Scotia business, and you are wondering whether signing it commits you to the deal. The honest answer is that it depends on how the document is written.

This article explains how these letters are usually built, which parts people commonly intend to be binding, and what to check before you sign. It is general information rather than advice on your document.

This article covers the law of Nova Scotia.

What a letter of intent usually is

A letter of intent, sometimes called a term sheet or memorandum of understanding, sets out the main terms the parties have discussed: price, structure, timing and conditions. It is normally a stepping stone to a full purchase agreement.

The title does not decide whether it binds anyone. What matters is the wording, including whether it says it is binding or non-binding in certain parts, and how the parties behave. If the wording is unclear, you could end up committed to more than you expected, so have it reviewed before signing.

Parts that are often intended to be binding

The table shows common practice, not a rule. A letter can make any part binding or non-binding, and the clause that says which is among the most important to read.

Exclusivity and confidentiality in practice

Exclusivity, sometimes called a no-shop clause, protects a buyer who is spending money on due diligence. For a seller it can be costly if the buyer walks away and the period was long. Look at how long it lasts, whether it can end early, and whether it ends automatically if the buyer changes the price.

Confidentiality clauses affect who you can tell, including employees, landlords, lenders and advisors. Check whether you may share information with your lawyer, accountant and financing sources.

Deal terms that carry legal and tax consequences

Even a non-binding letter shapes the negotiation, so the structure it describes deserves attention. In a share purchase the company's own assets keep their cost base, while in an asset purchase the buyer allocates the price among the assets. Share purchases are generally not subject to GST/HST, while asset purchases can be unless an exemption or election applies.

• Sellers may prefer a share sale because a capital gains deduction may be available on qualified small business corporation shares, which a corporation selling assets does not get at the corporate level.
• Buyers and sellers may jointly elect under section 167 of the Excise Tax Act, on form GST44, so no GST/HST is payable when the buyer acquires all or substantially all of the property needed to carry on the business.
• CRA generally treats that as 90% or more of the property needed.
• The election is not available if the seller is a GST/HST registrant and the buyer is not, or if only individual assets are being bought.
• In an asset sale the seller may have recapture or a terminal loss of capital cost allowance, so the allocation affects both sides.

If the buyer is a GST/HST registrant, the election form is due on or before the due date of its GST/HST return for the first reporting period in which tax would otherwise have become payable. A letter of intent can usefully say that the parties will make the election.

Regulatory points that may belong in the letter

Competition Act pre-merger notice generally applies only when both the transaction-size and party-size tests are met. For 2026 these are $93 million for the target and $400 million combined for the parties and affiliates, so most small-business purchases fall far below them.

If the buyer is not Canadian, the Investment Canada Act may require notification even below its review thresholds. A letter of intent can state who is responsible for these steps.

What to do next

• Read which sections say they are binding and which say they are not.
• Check the length and exit terms of any exclusivity period.
• Confirm who may see confidential information, and what happens if the deal fails.
• Confirm whether the deal is shares or assets, and how the price will be allocated.
• Ask whether a section 167 election is planned and who files it.
• Have a lawyer review the letter before you sign, and involve an accountant on tax questions.

Frequently asked questions