- Sellers describe their inventory and equipment in a summary prepared for the sale — a list, a rough valuation, sometimes just a verbal description during a walkthrough.
- Every material piece of equipment and every category of inventory should be itemized, ideally with serial numbers, purchase dates, and condition notes where relevant.
- Even if equipment physically exists and is in good condition, the seller may not own it outright.
A walkthrough of the shop floor or a look at the equipment list in the seller's summary isn't the same as confirming what you're actually buying. Before closing on a business purchase in Ontario, buyers should physically verify inventory and equipment, and separately confirm there are no registered claims against them — two different checks that catch two different kinds of problems.
This article walks through both processes and how the results should feed into the final purchase agreement.
Why "What You See" Isn't Necessarily "What You're Buying"
Sellers describe their inventory and equipment in a summary prepared for the sale — a list, a rough valuation, sometimes just a verbal description during a walkthrough. That description can be outdated, optimistic about condition, or simply incomplete. Separately, and just as importantly, the equipment sitting on the floor might not be fully owned free and clear — some of it could be leased, financed, or subject to a registered security interest that isn't obvious just by looking at it.
Both issues need to be checked before you rely on the seller's description in your offer.
The Physical Verification Process
- Get, or create, a detailed asset list. Every material piece of equipment and every category of inventory should be itemized, ideally with serial numbers, purchase dates, and condition notes where relevant.
- Conduct a physical count and inspection, ideally close to the anticipated closing date so the numbers are current. For inventory, this typically means an actual count, not an estimate from the books.
- Compare the physical count to what the seller's financial records and asset list show. Discrepancies, such as missing items or quantities that don't match, need an explanation.
- Assess condition, not just existence. Equipment that's present but near the end of its useful life, or inventory that's obsolete, damaged, or unsellable, is worth far less than book value suggests.
- Document everything in writing, ideally as a schedule attached to the purchase agreement, so there's a clear record of exactly what was verified and when.
Checking for Liens: Why a PPSA Search Matters
Even if equipment physically exists and is in good condition, the seller may not own it outright. Equipment can be financed, leased, or pledged as collateral for a loan, and those arrangements are typically registered under Ontario's Personal Property Security Act (PPSA). A PPSA search against the seller, and the specific equipment where practical, before closing lets a buyer see whether:
- A lender or lessor has a registered security interest in some or all of the equipment being "sold" to you.
- Equipment the seller describes as owned outright is actually still financed.
- Any registered interests need to be discharged, or specifically dealt with in the purchase agreement, before or at closing.
A PPSA search carries a modest government fee — currently around $8 for an online or certificate search, as of mid-2026 — and is one of the most cost-effective due diligence steps available for confirming clean title to a seller's equipment. Confirm the current fee before relying on it, since government fee schedules change.
Matching the Purchase Agreement to What You Actually Found
Once the physical verification and PPSA search are complete, the results should be reflected directly in the deal documents, not left as an informal understanding:
- A specific schedule of included assets, attached to the purchase agreement, listing exactly what's included, ideally matching what was physically verified.
- Representations and warranties confirming the seller has good title to the assets being sold, free of undisclosed liens, with an indemnity if that turns out to be false.
- A closing condition that any registered security interests revealed by the PPSA search be discharged, or otherwise dealt with, before or at closing.
- A price adjustment mechanism, where appropriate, if the physical verification, particularly of inventory, happens close to closing and the final count differs from what was assumed when the price was negotiated.
Common Problems Buyers Find
- Inventory that includes obsolete, damaged, or genuinely unsellable stock counted at full value.
- Equipment that's leased or financed, not owned outright, despite being presented as an included asset.
- A registered PPSA security interest the seller didn't mention, sometimes because the underlying loan was paid off but the registration was never formally discharged.
- A meaningful gap between the physical count and the seller's books, without a clear explanation.
- Equipment nearing the end of its useful life that will require near-term replacement the buyer wasn't budgeting for.
Frequently asked questions
Who should do the physical inventory count — me, the seller, or a third party?
Ideally both sides participate, or an agreed independent party conducts the count, so there's no dispute later about what was actually there at closing. The purchase agreement should specify the process in advance.
What if a PPSA search reveals an existing lien on the equipment?
This is common where a seller financed equipment purchases, and it's often resolved by requiring the seller to discharge the registration using sale proceeds at closing — but it needs to be addressed explicitly in the purchase agreement, not assumed away.
Does this matter less in a share purchase, since I'm buying the whole company anyway?
The verification itself matters just as much — you're still relying on the corporation's equipment and inventory being what it's represented to be. What changes is that any existing liens or financing arrangements come with the corporation in a share sale, rather than being something you can simply choose not to assume.
How close to closing should the final inventory count happen?
As close as practically possible, since inventory levels change with ongoing operations. Many purchase agreements specify a count on or near the closing date itself, with a price adjustment mechanism if the final numbers differ from what was assumed earlier.
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