A vendor take-back means the seller gets paid after closing, out of a business somebody else now runs. Whether that money ever arrives depends on the security registered on closing day, not on the promissory note. We draft both sides in Ontario.
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From $3,388.87 taxes included
A vendor take-back (VTB) is part of the purchase price the buyer does not pay on closing. It stays outstanding as a debt, usually recorded in a promissory note, and is repaid over a term with interest. The seller is no longer just a seller. From the moment the deal closes, the seller is a lender to a business under someone else's control.
VTBs exist for a practical reason. A bank will lend against equipment, receivables and real property, but not against goodwill — and goodwill is most of the price in an owner-run business. A VTB fills that gap. It also signals confidence. A seller who leaves money in the deal is telling the buyer and the bank that the numbers on the financial statements are real.
For a buyer, seller financing is usually cheaper and faster than finding a second lender, and it keeps the seller invested in a clean transition. The cost is that the seller keeps a claim on the business, a security registration against its assets, and often a say in what the buyer can do with cash while the balance is outstanding.
The note itself is the easy part. Amount, interest rate, term, payment schedule and whether payments start immediately or after a deferral period are commercial decisions the parties usually settle quickly. What lawyers argue about is everything behind the note — security, priority, guarantees, default triggers, and whether a warranty claim can be applied against what is still owed.
A promissory note is a promise. If the buyer stops paying, an unsecured seller is an ordinary creditor standing behind every secured lender in line. Security changes that. In an asset sale the seller normally takes a general security agreement over the business assets and registers it in Ontario's personal property security registry, which fixes the seller's place in the queue against later creditors.
Priority is usually the hardest negotiation. If a bank is funding part of the purchase, it will require the seller to postpone its security behind the bank's. That is normal and expected. What is not acceptable is a blanket postponement with no limits — no cap on how much the bank can advance ahead of you, no notice if the buyer defaults with the bank, and no standstill period after which you are free to enforce.
In a share sale there are no assets to charge, because the corporation still owns them and the seller sold shares. The usual answer is a pledge of the purchased shares, so the seller can take the company back on default, backed by guarantees from the buyer's principals. Where real property forms part of the deal, a charge is registered on title under the <a href="https://www.ontario.ca/laws/statute/90l05">Land Titles Act</a>.
Two clauses matter more than their length suggests. A right of set-off lets an unpaid indemnity claim and the outstanding balance meet in one document instead of two lawsuits. A default and acceleration clause defines what counts as trouble — missed payments, unpaid taxes, a sale of the equipment, a change of control — and makes the whole balance immediately due when it happens.
The most common failure is the simplest. The parties are friendly, the note is signed, nothing is registered, and eighteen months later the business is struggling with a bank, a landlord and the CRA all ranking ahead of the seller. Register on the closing date. Security registered late is worth less, and can be attacked outright if the buyer later becomes insolvent.
The second failure is silence about how the buyer runs the business. Without covenants, a buyer can pay itself management fees, declare dividends, take on new debt or sell the equipment your security depends on, all while paying you the minimum monthly amount. Reasonable limits on distributions and new borrowing while the VTB is outstanding cost nothing to draft and are rarely refused.
The third is tax timing. On a share sale the seller is generally taxed on the gain in the year of closing, even though part of the price arrives over several years. The <a href="https://laws-lois.justice.gc.ca/eng/acts/I-3.3/">Income Tax Act</a> allows a reserve that can spread the gain to match when proceeds become receivable, subject to conditions and limits. Confirm the treatment with your accountant before fixing the payment schedule.
We act for both sides — sellers who want to be paid, and buyers who need terms they can actually live with. Our published starting fee for a straightforward Ontario purchase or sale is $3,388.87, taxes included, confirmed in writing once we have read the agreement. See <a href="/pricing">full pricing</a>, or how we handle <a href="/buying-selling-a-business">buying and selling a business</a>.
It is part of the purchase price the buyer does not pay on closing. The unpaid amount becomes a loan from the seller to the buyer, recorded in a promissory note and repaid with interest over an agreed term. Sellers use it to bridge what a bank will not finance, which is usually the goodwill portion of the price.
Yes, if you want to be paid ahead of other creditors. An unsecured note ranks behind every secured lender. In an asset sale the seller normally registers a general security agreement over the business assets. In a share sale the usual protection is a pledge of the purchased shares plus personal guarantees from the buyer's principals. Register on the closing date.
It almost always does, and postponing behind the bank is standard practice. The terms of the postponement are what matter. Ask for a cap on the bank debt ranking ahead of you, notice to you if the buyer defaults with the bank, and a defined standstill period rather than an indefinite one. A blanket postponement can leave you with nothing.
Only if the deal was documented for it. With registered security or a share pledge, and a properly drafted default and acceleration clause, a seller can enforce and in practice often does recover the business. Without security, you have a lawsuit for a debt against a company that has usually already run out of money.
Possibly. A share sale triggers a capital gain in the year of closing even where the price is paid over several years. The Income Tax Act provides a reserve that can spread the gain to match when the proceeds become receivable, subject to conditions and limits. Get your accountant's confirmation before you agree to the payment schedule, not after.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.