- In an asset sale, contracts and leases do not move automatically; what is needed depends on each document's own terms.
- In a share sale the corporation stays the contracting party, but some contracts may still require consent on a change of control.
- Employees, WSIB accounts, liens and land transfer tax follow their own rules.
In an asset sale you are buying or selling pieces of a business, not the company itself. That raises a practical question: what happens to the lease, the supplier agreements and the customer contracts that keep the business running?
There is no single Ontario rule that answers this for every contract. This article explains how to approach it, and where specific rules do apply, such as employees, WSIB and land transfer tax.
Asset sale or share sale: who is the contracting party?
In an asset sale, the buyer is a new party stepping into the seller's position, so each contract usually has to be assigned or replaced. In a share sale, the corporation remains the contracting party, so the contracts generally stay in place.
That is why some buyers choose shares for convenience. The trade-off is that the acquirer takes on the seller's liabilities by law in share acquisitions and amalgamations, at least for WSIB purposes.
Commercial leases
Whether a commercial lease can be assigned, and whether the landlord must consent, depends first on what the lease says. Read the assignment, subletting and change-of-control clauses early, because the landlord's position can decide whether the deal works.
- Find the lease and every amendment, and read the assignment clause.
- Ask whether the landlord's consent is required and on what conditions.
- Ask whether the landlord can ask for guarantees, a deposit or a new lease.
- Make closing conditional on landlord consent if the location is essential.
- Ask a lawyer how the law applies if the lease is silent.
Supplier, customer and licence agreements
Assigning these contracts is governed by each contract's terms and the general law of contract. Some allow assignment freely, some require the other side's written consent, and some forbid it. Licences and key customer relationships can be the most sensitive.
In a share sale, change-of-control clauses can still require consent or give the other party a right to end the agreement. Review them in due diligence rather than assuming nothing is needed.
Where the other party's consent is a condition of the deal, the agreement usually says who must obtain it and what happens if it is refused.
Matters that follow their own rules
| Item | Asset sale | Share sale |
|---|---|---|
| Employees | Employment is not ended if the employee keeps working for the new owner, and service with the seller carries over for vacation, notice and severance | Same business owner; the corporation remains the employer |
| WSIB | A buyer is liable for the employer's amounts owing before the disposition unless a purchase certificate is obtained | No purchase certificate is issued, and the acquirer takes on liabilities by law |
| Land transfer tax | Payable on land when the transaction closes | Ordinarily not payable on a transfer of shares of a corporation that holds land |
For employees, prior service does not carry over if the employee is rehired by the buyer more than 13 weeks after the earlier of their last day with the seller or the day of the sale. The rule also applies when only part of a business is sold.
For WSIB, a purchase certificate is available on request if the seller's account is in good standing, it waives the buyer's liability, and it is valid for 30 days from its issue date. For land transfer tax, shares that carry a right to exclusive occupation of a unit, as in an equity co-operative, are taxable.
What to do next
- List every contract, lease and licence the business depends on.
- Read each for assignment and change-of-control terms.
- Search for registered security interests against the seller's personal property through ServiceOntario's Access Now; it does not cover real property.
- Request a WSIB purchase certificate in an asset purchase.
- Have a lawyer draft closing conditions around consents.
Frequently asked questions
Does a lease automatically transfer in an asset sale?
Not automatically. It depends on the lease terms and usually on the landlord's response, so read the assignment clause and speak to a lawyer early.
Do employees have to be rehired by the buyer?
If an employee keeps working for the new owner, the employment is not ended and prior service flows through. Prior service does not carry over if the employee is rehired more than 13 weeks after the earlier of their last day with the seller or the day of the sale.
Can I check for liens on the seller's equipment?
Yes. ServiceOntario's Access Now lets you search for registered security interests against a seller's personal property, but it does not cover real property.
Is land transfer tax payable on a share sale?
A transfer of shares of a corporation that holds land in its own right does not ordinarily attract land transfer tax. There are exceptions, such as equity co-operatives.
Sources
- WSIB Operational Policy – Purchase Certificates — wsib.ca
- Ontario – Your guide to the Employment Standards Act: Continuity of employment — ontario.ca
- Ontario Ministry of Finance – Land transfer tax — ontario.ca
- Ontario Ministry of Finance – Land transfer tax and treatment of unregistered dispositions of beneficial interests — ontario.ca
- Ontario – Register a security interest or search for a lien on Access Now — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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