What should I check before buying a business in Ontario — share purchase or asset purchase?
An asset purchase lets a buyer choose what it takes on and generally leaves liabilities behind; a share purchase transfers the company whole, including its history, and shifts risk onto representations, warranties and indemnities.
The structure decision drives everything else. In an asset purchase the buyer selects specific assets and assumed liabilities, which limits exposure to the target's history but requires consents to assign contracts, leases and permits. In a share purchase the buyer acquires the corporation as it stands — including tax exposure, employment history, litigation and regulatory issues — usually at a tax advantage to the seller.
Due diligence should be scoped to the structure: corporate minute book and share register, material contracts and change-of-control clauses, employment terms and accrued entitlements, the commercial lease, PPSA and title searches, tax filings, insurance, and any licensing.
The agreement then allocates the residual risk through representations and warranties, indemnity caps and survival periods, a holdback or escrow, and non-competition and non-solicitation covenants from the vendor and key people.
Source: Business Corporations Act, R.S.O. 1990, c. B.16 · Bulk Sales law repealed in Ontario
This work is handled by Maryam Noorzad (Corporate / business). Read more about corporate / business at VK Law Group, or send us the facts and we will tell you where you stand.
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