Reviewing Supplier and Customer Contracts Before Buying a Business in Ontario

A business's value often lives inside its contracts as much as its balance sheet — the supply agreement with favourable pricing, the multi-year customer contract that anchors half of its revenue, the distribution arrangement that took years to build. None of that value transfers automatically just because you've bought the business. Whether it transfers at all — and on what terms — depends on what those contracts actually say.

Contract review is a core part of due diligence in any business purchase, and the questions you need answered differ depending on whether your deal is structured as a share sale or an asset sale.

Why Structure Changes the Contract Question

In a share sale, the corporation that's a party to the contracts doesn't change — you're acquiring the shares, and the corporation continues holding its existing agreements. Contracts generally stay in place automatically, unless a contract has a change-of-control clause that treats the sale of shares as triggering a right for the other party to terminate, renegotiate, or object.

In an asset sale, the contracts themselves are among the assets being transferred (or not) — and most contracts require the other party's consent before they can be assigned to a new entity. This makes assignability a central, deal-critical question in almost every asset purchase.

What to Look for in Each Key Contract

1. Assignability

Does the contract permit assignment without consent, require consent (which may or may not be able to be unreasonably withheld, depending on the wording), or prohibit assignment outright? This single clause determines how much work is needed to carry the contract into the new ownership structure.

2. Change-of-Control Provisions

Even in a share sale where the contracting entity doesn't change, a change-of-control clause can give the other party rights triggered by the sale itself — termination, renegotiation, or a right of first refusal. These clauses are easy to miss because they don't look like assignment clauses, but they can have the same practical effect.

3. Term and Renewal

How much runway is left on the contract, and on what terms does it renew? A key customer contract expiring six months after closing is worth very differently than one locked in for several more years.

4. Exclusivity and Non-Compete Obligations

Does the contract bind the business to exclusive dealing with one supplier or customer? Exclusivity can be valuable (guaranteed volume) or restrictive (limits your ability to diversify), depending on which side of the relationship the business sits on.

5. Pricing and Volume Commitments

Are prices locked in, tied to an index, or subject to renegotiation? Are there minimum purchase or supply volumes the business is obligated to meet — and can it actually meet them?

6. Termination Rights and Notice Periods

What triggers termination, and how much notice is required on either side? A contract that either party can walk away from with minimal notice provides much less certainty than one with a firm term.

7. Concentration Risk

Beyond the terms of any single contract, look at the bigger picture: how much of the business's revenue depends on one or two customers, and how much of its costs depend on one or two suppliers? Losing a single relationship in a concentrated business can be far more damaging than the contract's own termination clause suggests.

A Practical Review Process

1. Get a complete list of material contracts from the seller as part of due diligence — not just the ones the seller volunteers, but a comprehensive schedule.
2. Sort by materiality — prioritize contracts representing significant revenue, supply, or operational dependency over minor or expired agreements.
3. Read the assignment and change-of-control clauses first in each material contract, since these determine what work (if any) is needed before or at closing.
4. Identify which consents need to be sought, and build the timeline for obtaining them into your closing schedule — this can take longer than buyers expect, especially with larger counterparties.
5. Flag contracts that terminate or expire on notice of the sale, and factor the risk of losing them into your assessment of the business.
6. Confirm with the seller who will lead outreach to counterparties for consent, since an approach from the existing owner is often better received than a cold approach from an unfamiliar buyer.

Frequently asked questions