Selling an Adjusting Practice: Why the Deal Structure Had to Change

The situation

Rosario and Ramon had built an independent insurance adjusting practice out of a small office in Waterloo over sixteen years, incorporated as a single operating company that they owned jointly. The practice handled property and casualty claims work for a roster of insurers and brokers across the region, with a team of adjusters and support staff who came with the file base. When Rosario turned sixty, the two of them decided it was time to sell, and after several months of quiet conversations through a business broker, they found a buyer: Gabriela, an experienced adjuster who wanted to acquire an established practice rather than build one from nothing.

The two sides agreed on a purchase price of roughly $1.2 million, reflecting the value of the client relationships, the trained staff, and the steady stream of referral work. The original plan, put together informally before either side had a lawyer involved, was a share sale: Gabriela would buy Rosario and Ramon's shares in the corporation outright, step into their place as owner, and the business would carry on exactly as it had, just under new ownership. On paper it was the simpler route. In practice, it turned out to be the wrong one.

What due diligence found

Before Gabriela's lawyer would let her sign anything, they insisted on standard due diligence — a review of the corporation's financial records, contracts, employment history, and any past or pending claims against the business. That review surfaced something Rosario and Ramon had not thought to mention, because from their side it had felt closed: three years earlier, a former client had filed a professional complaint alleging the firm had mishandled the assessment on a significant property claim, causing the client financial loss. The complaint had been investigated, the firm had cooperated, and no formal findings against the corporation had been made. But the file was still technically open pending a final administrative decision, and there was no way to say with certainty that it wouldn't result in a claim against the corporation down the road.

This is the structural problem with a share sale that many first-time sellers do not appreciate. When a buyer purchases shares, they are buying the corporation itself — its bank accounts, its contracts, its goodwill, and every liability sitting on or off its books, known or unknown, past or future. A corporation is a separate legal entity from the people who ran it, and that entity's history follows it regardless of who owns the shares. Gabriela's lawyer was right to flag it: if that complaint turned into a claim after closing, it would be Gabriela's corporation on the hook, not Rosario and Ramon personally, even though the conduct in question happened entirely on their watch. Gabriela's own advisor told her plainly that no reasonable buyer signs onto that kind of open-ended exposure without a very large price adjustment or an indemnity strong enough to make it meaningless — and even then, an indemnity is only as good as the person standing behind it years later.

The deal stalled. Gabriela didn't walk away, but she made clear she would not proceed on a share purchase at the agreed price. Rosario and Ramon came to Treadstone Law at that point, worried the sale was unravelling over something they considered a minor, resolved matter.

What we did

1. Reframed the deal as an asset sale instead of a share sale. Rather than Gabriela buying the corporation's shares, we restructured the transaction so she would purchase the business's assets directly — the client files, equipment, the office lease, the trade name, and the employment relationships with staff who agreed to move over. The existing corporation, with its liability history attached, would stay with Rosario and Ramon. Gabriela would run the practice going forward through a new corporation of her own, one with no history at all.
2. Drew a clean line around what was — and wasn't — transferring. The purchase agreement specified exactly which assets and contracts moved to the buyer and expressly excluded all existing and contingent liabilities of the old corporation, including the open complaint. Ontario law does not automatically let a business step away from its obligations just by selling its assets — certain liabilities, particularly to employees and in limited other circumstances, can follow assets even in a proper asset sale — so this exclusion had to be drafted carefully and paired with clear notice to affected staff and counterparties rather than relied on as a blanket shield.
3. Negotiated a holdback tied to the open complaint. Even with liability legally staying behind, Gabriela's lawyer wanted assurance the sellers had skin in the game if the complaint escalated before it was resolved. We agreed to a holdback of part of the purchase price, released to Rosario and Ramon once the regulatory file closed without findings against the corporation, with a defined ceiling on what could be withheld.
4. Addressed the tax consequences directly with the clients. A share sale would have let Rosario and Ramon each claim the lifetime capital gains exemption available to owners of qualifying small business corporation shares, sheltering a meaningful portion of their gain from tax. An asset sale does not offer that same exemption to the individual owners in the same way, since the corporation sells the assets and pays tax at the corporate level before any proceeds reach Rosario and Ramon personally. We made sure they understood this trade-off before committing to the restructure and encouraged them to confirm the specific numbers with their accountant, since the right answer depends on each owner's full tax picture, not just the mechanics of the sale.
5. Handled the practical handoff of the practice. Beyond the liability question, an asset sale meant re-papering the assignment of the office lease, transferring or renewing the firm's professional licensing arrangements in Gabriela's name, and confirming with the insurers and brokers who fed the practice work that the relationship would continue uninterrupted under new ownership.

The outcome

The restructured deal closed roughly two months later than the original timeline, largely because of the extra drafting and negotiation the asset sale required. The purchase price held at approximately $1.2 million, with about $150,000 of it held back pending resolution of the regulatory complaint. Gabriela took over the practice's assets, staff, and client relationships through her own new corporation, with no exposure to the old company's history. Rosario and Ramon wound down the original corporation over the following months, once the holdback was released after the complaint closed without any finding against the firm.

The sale worked because both sides had accurate information early enough to restructure around the real risk instead of arguing over who should absorb it. Rosario and Ramon gave up part of the tax advantage they had originally counted on, but they kept the sale itself intact at close to their target price, and they did it without a drawn-out dispute over indemnities that neither side would have fully trusted anyway.

What you can learn from this