Diligence has one job: to test the assumptions behind the price. It is not a general audit of the business and it is not about producing a long report. It is about finding the handful of things that change what you would pay, what you need protected, or whether you close at all.
Our charges include applicable taxes. Disbursements are extra and billed at cost — itemized upfront, in writing, never hidden.
From $3,388.87 taxes included
Every purchase price rests on assumptions. That the customer contracts run for another two years. That the lease can be assigned or survives the change of control. That the equipment is owned and unencumbered. That the employees are on the terms the seller described. That the company's tax filings are current. Diligence tests each assumption against a document, and where the document does not exist, that is itself a finding.
The second job is to build the deal terms. What diligence confirms goes into the representations. What it discovers goes into the disclosure schedules. What it cannot resolve becomes a specific indemnity, a holdback, a condition to closing, or a price reduction. A diligence exercise that produces a binder but does not change a single clause in the agreement was wasted money.
Scope it before you start. On most owner-operated Ontario businesses the areas that repay attention are corporate title to the shares, the customer and supplier contracts, the lease, employment, tax, and registered security. Chasing everything equally on a small deal costs more than the risk it uncovers.
Start with the corporate record. The minute book, articles and by-laws, the securities register and share certificates, directors' and shareholders' resolutions, any shareholders' agreement, and — for a private Ontario corporation since 1 January 2023 — the register of individuals with significant control required by section 140.2 of the Business Corporations Act. Incomplete minute books are the norm on small companies and usually have to be reconstructed before closing.
Then the public searches: a corporate profile report from the Ontario Business Registry, Personal Property Security Act registrations against the corporation and any predecessor or trade name, Bank Act security registrations held by the Bank of Canada, writs of execution filed with the Sheriff, bankruptcy and insolvency records, and Superior Court litigation searches in the relevant jurisdictions. Registered security has to be discharged or the discharge arranged as a closing deliverable.
Add the statutory clearances that fit the deal. A Workplace Safety and Insurance Board clearance certificate is standard where the business has employees, because unpaid premiums can follow a purchaser of a business. An Employer Health Tax clearance is common on asset deals, and CRA account standing for HST and payroll withholdings should be confirmed. If real property or a lease is involved, add title, zoning and any environmental record.
A confidentiality agreement goes first, before any document moves. It should cover use as well as disclosure, name who inside the buyer may see the material, address employees and customers with non-solicitation language, and set out what happens to the material if the deal dies.
Then structure. An indexed folder tree organised by category — corporate, financial, tax, contracts, employment, property, intellectual property, litigation, insurance, permits — with a numbering system stable enough that the disclosure schedules can cross-reference it. Keep a written question-and-answer log, because those answers become disclosure. Stage access so that the most sensitive material opens only once the deal is real.
Redact carefully. Customer pricing and named-employee compensation are usually withheld or anonymised until late, particularly where the buyer is a competitor. Personal information about employees is subject to federal privacy law, which permits disclosure for a prospective business transaction on conditions, including that the information be necessary for the transaction and protected by agreement. At closing, take a frozen copy of the entire data room and keep it with the deal record — it is the evidence of what was and was not disclosed.
Sort every finding into one of four boxes. Price it — a known shortfall, a lease ending sooner than assumed, deferred maintenance. Indemnify it — an identified tax exposure or an unresolved claim, with its own holdback and its own survival period outside the general cap. Condition it — the landlord's consent, the discharge of a PPSA registration, a key employee signing a new agreement. Or walk away.
Say it in writing before the agreement is redrafted. A short memo listing each finding and the treatment proposed, agreed with the other side, saves several rounds of markup and stops issues quietly disappearing between drafts.
Less time than people fear if the seller is organised, and much longer if the minute book is out of date. The searches themselves come back quickly. The delay is almost always on the seller's side: locating signed copies of contracts, reconstructing corporate resolutions, getting the accountant to explain adjustments, and obtaining clearance certificates from government offices that work at their own pace. Start the clearances and the landlord consent request early, because they are the usual bottleneck.
The buyer pays for its own diligence, including search and registry costs. At Treadstone those are disbursements — billed at cost, itemised in writing upfront, and separate from our flat legal fee of $3,388.87, taxes included. The seller carries its own cost of assembling the data room and obtaining any clearance certificates it has agreed to deliver.
You can look at high-level material, but a seller will normally want a confidentiality agreement first and an exclusivity period before opening the full data room. That is reasonable — a serious diligence exercise takes the business off the market and distracts its owner. The usual sequence is confidentiality agreement, then a letter of intent setting price, structure and exclusivity, then full diligence against that framework.
A short document listing only the findings that affect the deal, with the recommended treatment for each: price, indemnity, condition, or walk away. It is deliberately not a description of everything reviewed. For most owner-operated businesses it is the right deliverable, because the value of diligence is in the decisions it drives, not in the volume of paper it generates.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.