Everything to ask for, and why it matters, before you sign and pay.
Who this is for: Anyone buying an existing business in Ontario — a buyer, a co-founder, or an owner-operator stepping into someone else's company. What you'll get: a grouped, ready-to-send document-request list, plus a plain-language map of how a purchase moves from a handshake to a signed deal.
⚖️ This is a general guide, not legal advice. It can't account for your specific situation. Use it to get oriented, then confirm the details with a licensed Ontario lawyer.
Why due diligence matters
Due diligence is the homework you do before you buy — gathering and reviewing the seller's documents so you understand exactly what you're getting. You're checking three things: that the business is what the seller says it is, that it owns what it claims to own, and that no hidden liabilities (debts, lawsuits, broken contracts) will land on you after closing.
The single most important habit: get it in writing, and get it from the source. A verbal "we have no debts" is worth nothing if a creditor shows up after you've paid.
First, the big fork: asset deal or share deal?
How you buy changes what you're buying — and what you need to review. Understand this before you build your request list, because it drives everything that follows.
| Asset purchase | Share purchase | |
|---|---|---|
| What you buy | Selected assets (equipment, inventory, name, goodwill, contracts) | The shares of the corporation that owns the business |
| Liabilities | You generally pick what you take on; old debts usually stay with the seller | You inherit the whole company — including unknown liabilities |
| Contracts/leases | Often must be re-signed or assigned (landlord/customer consent) | Usually carry on automatically, since the company is unchanged |
| Due diligence focus | The specific assets and the contracts you're assuming | The entire history of the corporation |
| Typical buyer preference | Buyers often prefer it (cleaner liability) | Buyers accept more risk; sellers often prefer it for tax reasons |
💡 Why it matters: Sellers often favour a share sale for tax reasons (see our tax guides on the lifetime capital gains exemption). Buyers often favour an asset sale to leave old liabilities behind. The structure is negotiable and has real tax and legal consequences for both sides — settle it early.
How a purchase flows (so you know where you are)
- Letter of Intent (LOI). A short, mostly non-binding document setting out price, structure, and key terms — the framework. Confidentiality and exclusivity clauses in it usually are binding.
- Due diligence. You request and review the documents below. This is where deals are saved or killed.
- Definitive agreement. The binding Asset Purchase Agreement or Share Purchase Agreement, with the representations, warranties, and conditions.
- Closing. Money and ownership change hands; documents are signed and delivered.
- Transition. The seller helps hand over, often under a non-compete and a short transition period.
⚠️ Watch out: Start your due diligence document requests the moment the LOI is signed. Reviewing 200 documents takes time, and missing items are the most common cause of a delayed or collapsed closing.
The document-request list
Send this to the seller (and their lawyer/accountant) as your formal request. Tick items as you receive and review them — receiving a document isn't the same as understanding it.
1. Corporate records
Where they come from: the seller's minute book and corporate counsel.
- Articles of incorporation, amendments, and any amalgamation documents
- Current corporate profile report (from the Ontario Business Registry)
- The minute book — directors' and shareholders' resolutions and meeting minutes
- Share register and securities register (who owns what, and the history)
- Shareholders' agreement, if any
- By-laws
- Any options, warrants, or other rights to acquire shares
- Certificate of status / good standing
💡 Why it matters: A disorganized or incomplete minute book is a red flag and a real problem — in a share deal especially, you're buying the corporation's paperwork as much as its business. Gaps here can stall closing.
2. Financial records
Where they come from: the seller's accountant and bookkeeper.
| Document | Look for |
|---|---|
| Financial statements (3–5 years) | Trends, sudden swings, one-time items |
| Year-to-date interim statements | Recent performance vs. last year |
| Corporate tax returns (3–5 years) | Consistency with the statements; any reassessments |
| HST/GST filings and any sales-tax accounts | Filed and paid on time? |
| Payroll records and source-deduction remittances | No arrears to the CRA |
| Accounts receivable aging | How collectible are the receivables, really? |
| Accounts payable and a full list of debts/loans | What you might inherit |
| Bank statements and loan/security agreements | Liens against the assets |
- Audited or reviewed financial statements (3–5 years)
- Most recent interim financials
- Corporate income tax returns and notices of assessment/reassessment
- HST/GST, payroll, and other tax-account standing
- Accounts receivable and accounts payable listings
- All loan agreements, lines of credit, and security registrations (PPSA search)
💡 Why it matters: A PPSA search (Personal Property Security Act registry) reveals who has a legal claim against the business's assets. You don't want to buy equipment a bank can repossess.
3. Material contracts
Where they come from: the seller's records; confirm assignability with the lawyer.
- Major customer contracts (especially any single customer that's a big share of revenue)
- Supplier and vendor agreements
- The commercial lease (and any subleases) — plus the landlord's consent requirements
- Franchise, licensing, or distribution agreements
- Equipment leases and financing agreements
- Any agreement with a change-of-control clause (a clause letting the other party walk away if the business is sold)
⚠️ Watch out: Customer concentration is a classic hidden risk. If one client is 40% of revenue and their contract can be cancelled on sale, the business may be worth far less than it looks.
4. Employment
Where they come from: HR records and the seller's payroll provider.
- Full employee list: roles, start dates, salaries, status (full-time, part-time, contract)
- Written employment agreements and contractor agreements
- Termination, severance, and notice obligations (Ontario's Employment Standards Act, 2000 sets minimums)
- Vacation pay and any unpaid entitlements owing
- Pension, benefits, and bonus plans
- Any employment-related claims, complaints, or human-rights matters
💡 Why it matters: In an asset deal, employees don't come with the assets — you decide who to offer employment to, and anyone left behind can trigger termination and severance costs. For those you do hire, the ESA deems their years with the seller to count as years with you. In a share deal, all employment obligations carry over to you. Either way, accrued vacation and severance exposure are real liabilities — price them in.
5. Intellectual property
Where they come from: the seller, CIPO records, and domain registrars.
- Registered trademarks and applications
- Copyrights, patents, and industrial designs
- Trade names, business names, and the business's branding
- Domain names, websites, and social-media handles
- Software licences and any proprietary code or systems
- Confirmation that IP created by founders/contractors was properly assigned to the company
⚠️ Watch out: A surprising number of small businesses don't actually own their own logo, website, or code — a freelancer built it and never signed an assignment. Confirm the company holds clear title to its brand and tools.
6. Litigation and disputes
Where they come from: the seller and their lawyer.
- Pending or threatened lawsuits (as plaintiff or defendant)
- Past judgments and settlements
- Demand letters, complaints, or regulatory investigations
- Insurance claims history and current coverage
7. Permits, licences, and regulatory
Where they come from: the seller, the municipality, and provincial regulators.
- Municipal business licence and zoning compliance
- Industry-specific licences or certifications
- Health, safety, and environmental permits and inspection records
- Confirmation each permit can transfer or be re-issued to you
8. Assets and operations
Where they come from: the seller's records and a physical inspection.
- Equipment list with condition and ownership (owned vs. leased)
- Inventory list and valuation method
- Real property: deed, survey, environmental reports (if land is included)
- Insurance policies (property, liability, business interruption)
- Key operational know-how, supplier relationships, and customer lists
Representations, warranties, and the non-compete
Due diligence finds problems; the agreement allocates the risk of problems you didn't find.
- Representations and warranties are the seller's contractual promises that facts are true (e.g., "the financial statements are accurate," "there are no undisclosed lawsuits," "the company owns its IP"). If a promise turns out to be false, you may have a claim against the seller. A holdback — part of the price held back for a period — is a common way to back up these promises.
- A non-competition / non-solicitation covenant stops the seller from opening a competing business next door or poaching the staff and customers you just paid for. To be enforceable in Ontario, it must be reasonable in scope, geography, and time. An overly broad non-compete can be struck down entirely.
💡 Why it matters: You're not just buying assets — you're buying goodwill. A reasonable non-compete protects that goodwill. Your lawyer will draft it to be enforceable rather than wishful.
Who does what: your lawyer and your accountant
| Role | The lawyer | The accountant |
|---|---|---|
| Structure | Advises on asset vs. share and drafts the deal | Models the tax outcome of each structure |
| Documents | Reviews contracts, leases, corporate records, IP, litigation | Reviews financials, tax filings, and quality of earnings |
| Risk | Drafts reps, warranties, indemnities, holdback, non-compete | Verifies the numbers and flags financial red flags |
| Closing | Manages signing, PPSA searches, and transfer documents | Confirms working capital and post-closing adjustments |
You need both. Bring them in before the LOI is final — early advice is cheaper than fixing a bad deal later.
Mini-FAQ
How long does due diligence take? It varies — confirm with your advisors. A small, clean business can take a few weeks; a larger or messier one, a few months.
Can I back out if I find something bad? Usually yes — a well-drafted LOI and agreement make closing conditional on satisfactory due diligence. That's exactly what these conditions are for.
Do I really need all of this for a tiny business? Scale it to the deal, but don't skip categories — the smallest businesses often have the messiest records. The corporate, financial, and lien (PPSA) checks are non-negotiable.
How Treadstone Law can help
Treadstone Law guides Ontario buyers through business purchases from the letter of intent to closing — running the legal due diligence, drafting and negotiating the purchase agreement, handling PPSA and corporate searches, and structuring reps, warranties, holdbacks, and the non-compete so you're protected after the deal closes.
- Flat fees quoted up front — see our pricing.
- Start online anytime with our intake form, or call 1-844-900-1070.
- Learn more about our corporate services.
This is not legal advice
This guide is general information, not legal advice. Reading it does not create a lawyer-client relationship. Ontario laws, tax rates, and government programs change, and how the law applies depends on your specific facts. For advice about your situation, speak with a licensed Ontario lawyer. Treadstone Law is licensed by the Law Society of Ontario — reach us at 1-844-900-1070 or start a file online.