- States the total price for the shares, often paired with a working-capital adjustment mechanism comparing an estimated closing statement against a final post-closing statement, so the…
- Both the Ontario Business Corporations Act and its federal counterpart, the Canada Business Corporations Act, generally require shareholder approval by special resolution for a sale,…
- The Lifetime Capital Gains Exemption One of the main reasons sellers often prefer a share sale is the potential availability of the Lifetime Capital Gains Exemption (LCGE), which can…
A share purchase agreement (SPA) looks similar to an asset purchase agreement at first glance — both have representations, warranties, indemnities, and closing conditions. But because a share sale transfers an entire corporation rather than a hand-picked list of assets, the SPA is built around a different central question: not "what are we buying," but "what is the corporation we're buying actually exposed to."
Here's a section-by-section walkthrough, with particular attention to where an SPA structurally diverges from an APA.
The Anatomy of an Ontario Share Purchase Agreement
- Purchase Price and Adjustment. States the total price for the shares, often paired with a working-capital adjustment mechanism comparing an estimated closing statement against a final post-closing statement, so the price reflects the corporation's actual financial position at closing.
- Shares Being Purchased. Identifies the specific class(es) and number of shares being sold and confirms the seller's (or sellers', if there are multiple shareholders) ownership and authority to sell them.
- Representations and Warranties. Because the buyer is inheriting the entire corporation, this section is typically broader and more detailed than in an APA — covering not just the business's assets and contracts, but the corporation's tax filing history, litigation history, employee matters, minute book accuracy, and compliance with corporate law generally, usually qualified by a disclosure schedule.
- Covenants. Pre-closing promises (operating the business in the ordinary course, not amending corporate documents or issuing new shares before closing) and often post-closing commitments as well.
- Conditions to Closing. The specific events that must occur before either party is bound to close — third-party consents where a contract has a change-of-control clause, financing conditions, and any regulatory approvals the deal requires.
- Indemnification and Holdback. Because the buyer inherits the corporation's known and unknown liabilities, indemnities are especially central to an SPA — backed by representations and warranties, and frequently secured by a holdback or escrow covering a defined post-closing period.
- Corporate Records Delivery. A closing mechanic specific to share deals: the seller typically delivers the corporate minute book, share certificates, and related records confirming the corporation's good standing, often supported by a certificate of status or corporate profile report obtained from the Ontario Business Registry as part of due diligence.
- General Provisions. Governing law, notices, dispute resolution, and other standard administrative terms — largely similar in form to what appears in an APA.
Where an SPA Diverges From an APA
| Asset Purchase Agreement | Share Purchase Agreement | |
|---|---|---|
| What transfers | Specifically listed assets only | The entire corporation, as-is |
| Liabilities | Only those specifically assumed | Come with the corporation unless carved out by indemnity |
| Asset-by-asset schedule needed? | Yes | No — shares transfer as a single unit |
| Corporate-level shareholder approval | Often required for a sale of all or substantially all assets outside the ordinary course | Not required for the transaction itself — the shareholders are simply selling their own shares |
| Corporate history due diligence | Focused on the assets and specific contracts being acquired | Extends to the corporation's full history — tax filings, prior litigation, minute book accuracy |
| Reps and warranties scope | Tied to the assets and liabilities being transferred | Broader, covering the corporation as a legal entity |
Both the Ontario Business Corporations Act and its federal counterpart, the Canada Business Corporations Act, generally require shareholder approval by special resolution for a sale, lease, or exchange of all or substantially all of a corporation's property outside the ordinary course of business — that requirement is aimed at asset-level transactions. A share sale is a transaction of the shareholders' own shares, and does not itself trigger this kind of corporate-level approval requirement.
Tax and Employment Points Unique to Share Deals
The Lifetime Capital Gains Exemption
One of the main reasons sellers often prefer a share sale is the potential availability of the Lifetime Capital Gains Exemption (LCGE), which can shelter capital gains an individual realizes personally on a sale of qualifying small business corporation shares. As of mid-2026, the LCGE's base amount is about $1.25 million (effective for dispositions on or after June 25, 2024, and indexed annually) — figures change, so verify the current amount before relying on it. Whether specific shares actually qualify depends on several fact-specific tests and requires accounting or tax-legal advice; the exemption does not apply to a corporation's own sale of its assets.
Employment Continuity
Because the employer entity itself doesn't change in a share sale — the corporation simply has a new owner — employment generally continues automatically, without the Employment Standards Act, 2000 continuity-of-service question that arises in an asset sale.
Non-Competes for a Departing Seller
Since October 25, 2021, general employee non-compete agreements have generally been prohibited under the Employment Standards Act, 2000. One of the narrow recognized exceptions applies where a seller becomes an employee of the purchaser as part of a business sale — a scenario the SPA should address explicitly if the seller is expected to stay on and a non-compete is part of the deal.
Frequently asked questions
Do I still need due diligence on an SPA if the seller gives strong representations and warranties?
Yes. Representations and warranties give you a remedy if something turns out to be false, but they don't prevent problems from existing in the first place, and remedies have limits (time, amount, and what can actually be proven). Thorough due diligence — corporate records, financials, contracts, litigation history, and tax compliance — remains essential even with strong reps and warranties.
Does a share sale mean the buyer inherits every past liability automatically?
Generally, yes, unless the SPA's indemnities, price adjustments, or specific carve-outs address a particular liability. This is exactly why due diligence and the representations/warranties section carry more weight in an SPA than they might in an APA covering only specific assets.
Why would a buyer ever prefer a share purchase given that liability exposure?
Sometimes contracts, licences, or leases are difficult or impossible to transfer without triggering consents or renegotiation, and keeping the existing corporate entity intact avoids that friction. Buyers weigh that convenience against the liability exposure, often negotiating stronger indemnities and holdbacks to offset the risk.
Can the same deal be restructured from a share sale to an asset sale midway through negotiations?
It happens, but it's a significant change — pricing, tax treatment, and much of the agreement's structure typically need to be reworked, not just relabelled. If structure is still being debated, it's worth resolving before drafting the definitive agreement rather than during it.
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