- An LOI records the broad shape of a deal — price, structure, and key conditions — so both sides know they're aligned before investing serious time and cost in verifying everything.
- Your lawyer, accountant, and any other advisors work through: - [ ] Corporate records and minute book - [ ] Financial statements - [ ] Material contracts - [ ] Leases - [ ] Employee…
- While diligence wraps up, the parties' lawyers negotiate the definitive agreement — a Share Purchase Agreement or an Asset Purchase Agreement, depending on structure.
Signing a letter of intent feels like a milestone — and it is one. But for many first-time buyers, it also creates a false sense that the hard part is over. In reality, the LOI is closer to a starting gun than a finish line: most of the actual legal, financial, and practical work of an Ontario business purchase still lies ahead of you.
This is the stage buyers most often underestimate, both in how much work it involves and in how much can still change before closing. Here's what actually happens during it.
The LOI Is a Starting Line, Not a Finish Line
An LOI records the broad shape of a deal — price, structure, and key conditions — so both sides know they're aligned before investing serious time and cost in verifying everything. Most of its commercial terms are deliberately non-binding until a definitive purchase agreement is signed. That's precisely why so much still has to happen between signing the LOI and getting to closing: the details behind those broad terms haven't been tested yet.
Due Diligence: The Biggest Workstream
This is typically where most of the calendar time between LOI and closing actually goes. Your lawyer, accountant, and any other advisors work through:
- [ ] Corporate records and minute book
- [ ] Financial statements
- [ ] Material contracts
- [ ] Leases
- [ ] Employee records
- [ ] Intellectual property
- [ ] Licences and permits
- [ ] Litigation history
- [ ] Environmental matters
- [ ] Insurance
- [ ] Tax filings and compliance
Anything that raises a concern doesn't necessarily kill the deal — it usually gets addressed instead through a specific representation and warranty, an indemnity, a price adjustment, or a closing condition requiring it to be fixed before closing.
Drafting and Negotiating the Purchase Agreement
While diligence wraps up, the parties' lawyers negotiate the definitive agreement — a Share Purchase Agreement or an Asset Purchase Agreement, depending on structure. These are materially different documents: a share deal's agreement has to manage liabilities the corporation already carries, while an asset deal's agreement has to spell out precisely which assets are included and which liabilities, if any, the buyer is assuming. Both typically include representations and warranties, covenants, indemnities, and a disclosure schedule qualifying what the seller has represented.
Clearing Closing Conditions
Even a fully negotiated purchase agreement usually can't close until a list of conditions is satisfied:
- [ ] Landlord consent to assign the lease
- [ ] Payout and discharge of the seller's existing lender security
- [ ] Any required corporate approval — for example, shareholder approval by special resolution where a corporation is selling all or substantially all of its assets outside the ordinary course of business
- [ ] Confirmation of the corporation's good standing, often via a certificate of status
- [ ] Any franchise or industry-specific regulatory approvals that apply
- [ ] The buyer's financing conditions
Each of these can involve a third party — a landlord, a lender, a licensing body — that neither the buyer nor seller fully controls.
Financing and the Purchase Price Adjustment
Many deals include a financing condition that has to be satisfied before closing, and it's common for the purchase price itself to be adjusted after closing through a working-capital adjustment — comparing an estimated closing statement to a final post-closing one. Where the buyer wants extra protection against undisclosed liabilities, a holdback or escrow is a common tool: a portion of the purchase price is withheld or placed with a third party for a defined period to secure the buyer's indemnity claims.
What Can Cause This Stage to Stall
- A diligence finding that sends the parties back to negotiate price, an indemnity, or a holdback.
- A landlord, lender, or licensing body that responds slowly.
- Disagreement over how much protection the buyer needs versus how much risk the seller is willing to retain.
- Seller documentation that isn't yet organized enough for a lawyer or accountant to properly review.
Frequently asked questions
Is the LOI binding once we've signed it?
Generally, the commercial terms — price, structure, proposed timeline — are not. A short list of specific clauses, like confidentiality and exclusivity, is typically drafted to bind the parties immediately regardless of what happens with the rest of the deal.
What happens if due diligence turns up a serious problem?
It depends on what's found. Some issues get addressed through a specific indemnity or a price adjustment; others may require the seller to fix the problem before closing, or may lead the buyer to walk away if the LOI's conditions allow it.
Who is responsible for arranging financing during this stage?
The buyer is, and financing is typically built into the purchase agreement as a closing condition — meaning the deal generally can't close until the buyer's financing is actually in place, unless the parties agree otherwise.
Can the deal still fall apart after the LOI is signed?
Yes. Because most LOI terms are non-binding, either side can generally walk away from the underlying deal if diligence or negotiation doesn't go as expected — though binding clauses like confidentiality and exclusivity still apply even if the transaction itself doesn't close.
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