What to Include in a Business Sale Agreement in Ontario

When a buyer sends you a draft purchase agreement, it is usually written to protect the buyer. As the seller, you have room to negotiate, but only if you know which clauses carry the real risk.

This article explains the main parts of a business sale agreement in Ontario and where sellers commonly focus. It is general information, and a lawyer should review your actual draft before you sign.

Start with the structure: shares or assets

A share purchase agreement transfers your shares in the corporation. An asset purchase agreement transfers the business assets, contracts and sometimes employees. The structure changes almost every other clause, including tax, approvals and what liabilities stay with you.

The agreement is usually a business agreement, one where no party is a consumer under the Consumer Protection Act, 2002. That allows the parties to vary or exclude limitation periods, which is why the agreement can set its own survival period for representations and warranties.

Price, adjustments and payment terms

Look closely at how the price is calculated and paid. Sellers commonly review working capital or inventory adjustments, holdbacks, earn-outs and any portion paid after closing. Ask how each adjustment is measured and who decides disputes.

If part of the price is paid after closing, tax and security both matter. A reasonable capital gains reserve may be available where part of the price is not payable until after the end of the tax year, with at least one-fifth of the gain included each year. If you sell qualifying shares to your child who was resident in Canada, the spread can be up to 10 years.

For security, a seller who takes back a loan can register a financing statement in the PPSA registry over the business assets. An unperfected security interest is not effective against a trustee in bankruptcy, so an unregistered seller may rank as unsecured. A registration is effective only for its registration period, so you must renew it before it expires if the loan is still outstanding. If the buyer defaults, a secured party intending to dispose of collateral must generally give at least fifteen days' written notice, and the debtor may redeem before disposition by fulfilling the secured obligations and paying reasonable enforcement expenses.

Representations, warranties and indemnities

Representations are your statements of fact about the business: its finances, contracts, employees, taxes and compliance. An indemnity is your promise to compensate the buyer if those statements turn out to be wrong. This is where sellers often carry the most risk after closing.

Without a contract term, claims are generally subject to the Limitations Act, 2002. A proceeding cannot be started after the second anniversary of the day the claim was discovered, unless the Act provides otherwise. No proceeding can be started after the 15th anniversary of the act or omission, regardless of discovery. Because the parties can vary these periods in a business agreement, the survival clause deserves careful attention.

• Knowledge qualifiers, so that some statements are limited to what you actually know.
• Caps on your total liability and a minimum amount before claims can be made.
• How long each representation survives.
• How claims are notified and defended.
• Whether any holdback or escrow is the buyer's only source of recovery.

Closing conditions and tax clauses

Closing conditions list what must happen before either side has to complete. For many sales they include:

• Shareholder approval where a corporation sells all or substantially all of its property, given by special resolution of at least two-thirds of the votes cast or signed by all voting shareholders. Voting shareholders may have dissent rights to be paid fair value.
• The GST/HST election on an asset sale using Form GST44, available where the buyer acquires all or substantially all the property needed to carry on the business. It is not available where the seller is a registrant and the buyer is not, and tax still applies to some services, taxable leases or licences and certain real property sales.
• A buyer who is a registrant must file the election by the due date of its GST/HST return for the first reporting period in which tax would otherwise have been payable.
• For a non-resident seller, the buyer may withhold 25% of the excess of cost over the certificate limit. The buyer is not liable if a certificate of compliance was issued, or if, after reasonable inquiry, it had no reason to believe the seller was a non-resident.

Some regulatory notices depend on who the buyer is and how large the deal is. A non-Canadian making an investment that is subject to notification under the Investment Canada Act must notify the Director at any time before the investment is implemented or within thirty days afterward. For very large deals, the Competition Bureau must generally receive advance notice where the target's Canadian assets or sales exceed the transaction-size threshold, which remains at $93 million in 2026, and the parties and their affiliates have combined Canadian assets or revenues exceeding $400 million. Whether either applies to your sale depends on the facts, so it is worth confirming with a lawyer.

Which clauses to negotiate, and what to do next

• Ask your lawyer to mark up the draft before you respond to the buyer.
• Compare the disclosure schedules against your actual records.
• Ask your accountant to review the tax clauses and any election.
• Confirm what approvals, filings and registrations are needed on closing.

Frequently asked questions