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Sale and Purchase of Business

ON

This publication guides practitioners through the sale or purchase of a business in Ontario.

3 Matter Plans

Overview

The commentaries cover topics like tax implications, the status of the premises, and the importance and details of due diligence and disclosure.

The Reference materials folder includes comparison tables for different business structures and guidance on electronic signing and remote witnessing. The Getting the matter underway folder contains essential compliance and client engagement documents. The comprehensive Retainer Instructions ensure that all necessary information is gathered from the client at the outset of the matter.

The agreement provides for the transfer of all business assets, including copyright works, trademarks, supplier contracts, and customised restraint of trade provisions, ensuring they are enforceable. It also addresses the management of confidential information and e-commerce, binds key individuals, and includes clauses covering non-solicitation of staff and customers.

Precedents in this publication include:

  • Business purchase agreement;
  • Library of annexures and special conditions for business;
  • Non-disclosure agreement;
  • Due diligence questionnaires;
  • Deed of restraint of trade;
  • Term sheet;
  • Intellectual property agreements.
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3 Matter Plans Included

  • Item icon ALERTS - Nil
  • Item icon Full Commentary - Sale of Business (ON)
  • Folder icon Reference materials
    • Item icon AI Prompts
    • Item icon Electronic Signing and Remote Witnessing
    • Item icon Further information
  • Item icon Overview
    The sale of a business in Ontario is subject to a number of laws and regulations. Before considering the laws and regulations, the structure of the business and the tax consequences of the transaction need consideration. For instance, if a company or trust owns the business, there is a need to ...

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  • Folder icon A. Getting the matter underway
    • Item icon File cover sheet - Sale of business
    • Item icon To do list - Sale of business
    • Item icon First steps
    • Item icon Client details, verification, and source of funds
    • Item icon Retainer instructions - Sale of business
    • Item icon Conflict of interest check
    • Item icon Initial letter to client enclosing retainer agreement
    • Item icon Retainer agreement - Ontario
    • Item icon Scope of work - Sale of business
    • Item icon Enclosure - Summary of relevant considerations for the sale of a business
    • Folder icon If required - Authorities and service agreements
      • Item icon Authority to contact accountant
      • Item icon Broker services agreement - Sale of business
      • Item icon Services agreement with tax advisor
      • Item icon Generic services agreement
    • Item icon Time and costs estimates
    • Folder icon If required - Costs disclosure update and a non-engagement letter
      • Item icon Letter to client updating costs disclosure
      • Item icon Non-engagement letter
    • Folder icon General deeds, agreements, execution clauses, and statutory declarations
      • Item icon Deeds and Agreements
      • Folder icon Deeds
        • Item icon Confidentiality deed
        • Item icon Deed for general use
        • Item icon Deed of assignment of agreement
        • Item icon Deed of gift
        • Item icon Deed of guarantee
        • Item icon Deed of release
        • Item icon General deed of indemnity
        • Folder icon Library of standard clauses for deeds
          • Item icon Amendment clause
          • Item icon Confidentiality clause for defined information - All parties
          • Item icon Confidentiality clause for defined information - One party
          • Item icon Confidentiality clause for terms of agreement - All parties
          • Item icon Confidentiality clause for terms of agreement - One party
          • Item icon Costs clause
          • Item icon Counterparts clause
          • Item icon Dispute resolution clause
          • Item icon Events beyond control clause
          • Item icon Governing law and jurisdiction clause
          • Item icon Interpretation clause
          • Item icon No assignment clause
          • Item icon Notices clause
          • Item icon Severance clause
          • Item icon Waiver clause
          • Item icon Whole agreement clause
      • Folder icon Agreements
        • Item icon Agreement for general use
        • Item icon Heads of agreement
        • Item icon Non-disclosure agreement - Formal
        • Item icon Non-disclosure agreement - Informal
        • Folder icon Library of standard clauses for agreements
          • Item icon Amendment clause
          • Item icon Confidentiality clause for defined information - All parties
          • Item icon Confidentiality clause for defined information - One party
          • Item icon Confidentiality clause for terms of agreement - All parties
          • Item icon Confidentiality clause for terms of agreement - One party
          • Item icon Costs clause
          • Item icon Counterparts clause
          • Item icon Dispute resolution clause
          • Item icon Events beyond control clause
          • Item icon Governing law and jurisdiction clause
          • Item icon Interpretation clause
          • Item icon No assignment clause
          • Item icon Notices clause
          • Item icon Severance clause
          • Item icon Waiver clause
          • Item icon Whole agreement clause
      • Folder icon Execution clauses
        • Item icon Execution clauses - Agreements and contracts
        • Item icon Execution clauses - Deeds
      • Folder icon Statutory declaration
        • Item icon Statutory declaration
      • Item icon Standard annexure note for documents
  • Folder icon B. Preliminary considerations
    • Item icon Identifying the nature of the transaction
      The transaction might involve the sale of assets, the sale of shares, or a combination of both. Deciding on the best course of action involves an analysis of many factors, such as:

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    • Item icon Tax considerations
      Capital gains tax Whether it involves the sale of assets, intellectual property or shares, the sale of a business entity generally attracts capital gains tax. This is a primary tax consideration.

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    • Item icon Considerations for franchises
      The Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 and the regulations O. Reg. 581/00: GENERAL made under the Act encourage fair dealing between all parties to a franchise agreement and impose other duties and penalties on the parties.

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  • Folder icon C. Pre-sale negotiations
    • Item icon Purchase price
      While most vendors will have a set price in mind for the sale of their business, some will ask the practitioner to assist with the valuation. If so, it is to be made clear to the client that this general consulting work is not to be considered legal advice. A finance or accounting professional can ...

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    • Item icon Confidentiality
      Usually, the vendor or their broker will require prospective purchasers to enter into a non disclosure agreement before disclosing financial and other information about the business. Sometimes, brokers require this even before the business’s name is revealed. The purpose is to ensure that all ...

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    • Item icon Non-disclosure agreement
    • Item icon Exclusivity period
      It can be highly advantageous to the prospective purchaser, particularly in a strong market, to negotiate a period of exclusivity. During this period, the vendor will not be able to negotiate with anyone else. This will allow the purchaser sufficient time to conduct their due diligence enquiries. ...

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    • Item icon Term sheet or letter of intent
      Once the parties have agreed in principle, it is important to confirm the general understanding of the key terms of the transaction before commencing due diligence and drafting the purchase agreement. The term sheet or letter of intent is a precursor to a formal purchase agreement and is not ...

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    • Item icon Term sheet
    • Item icon Due diligence
      Purchaser due diligence Due diligence by the purchaser generally involves making reasonable investigations before deciding to enter into the agreement to minimize, or at least identify, any risk involved.

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  • Folder icon D. The purchase agreement
    • Item icon Disclosure requirements
      Examples of documents that are typically attached to the purchase agreement are:

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    • Item icon Form of purchase agreement
      There is no prescribed form of agreement for the sale of a business. An agreement is drafted by the legal representative of either the vendor or the purchaser. Various agreements are offered commercially, including the Business Purchase Agreement, available on the matter plan. The sale of a ...

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    • Item icon Business purchase agreement
    • Folder icon Library of purchase agreement annexures
      • Item icon Blank annexure page
      • Item icon Annexure with employee details
      • Item icon Annexure of plant fixtures and fittings
      • Item icon Annexure of registered vehicles
      • Item icon Annexure detailing ongoing agreements
    • Folder icon Library of special conditions for business
      • Item icon Arbitration
      • Item icon Closing - Time is of the essence
      • Item icon Computer software and domain names
      • Item icon Confidentiality
      • Item icon Domain names, websites and email addresses
      • Item icon Entering into agreement on less than 10% deposit
      • Item icon Guarantee for corporate purchaser
      • Item icon Interest to run from expiry of notice to complete
      • Item icon Late completion - Payment of interest
      • Item icon Liquor licence transfer
      • Item icon Purchaser to comply with outstanding notice
      • Item icon Registered vehicles
      • Item icon Restraint of trade variation of standard clause
      • Item icon Software
      • Item icon Trial period
      • Item icon Vendor to comply with outstanding notice
    • Item icon Share purchase agreements
      The company that owns and conducts the business can be sold rather than the business assets themselves. This involves the sale of the shares of the company. While this may lead to a more straightforward transfer of ownership for any underlying assets, many purchasers may not want to take the risk ...

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    • Item icon Share purchase agreement
    • Folder icon If required - Share transfers
      • Item icon Share transfers
        If an underlying business entity is being sold, a transfer of the shares in that entity to the purchaser is required. This does not necessarily require any registration with the Ontario government. However, the Canada Revenue Agency and the bank will have to be notified of any new registered ...

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      • Item icon Letter to shareholder enclosing notice of meeting
      • Item icon Notice of board and shareholder meeting including resolutions
      • Item icon Share certificate
      • Item icon Capitalization table
      • Item icon Agreement for sale of units in an income trust
    • Folder icon If required - Intellectual property transfers
      • Item icon Intellectual property transfers
        Business names Most business names will be owned by or registered to the underlying entity being sold. Business names must be registered with the Ontario government under the Ontario Business Names Act, R.S.O. 1990, c. B.17. However, the vendor may own business names under their own name, as a sole ...

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      • Item icon Trademark agreement
      • Item icon Intellectual property licence agreement
      • Item icon Licence of copyright agreement
    • Item icon Real property transfers
      The first step is to identify the property and decide whether a transfer is required. If the business changes hands through a share transfer, and all underlying property is owned by the company, a title transfer is not required. If a property transfer is required, it is usually completed by a ...

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    • Item icon Employees
      The purchaser's desire to retain the employees of the business, as well as the employees' willingness to continue, can vary. If an employee has a current contract with the vendor, the purchaser may also have obligations to the employee under the employment contract. This is usually the case when a ...

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    • Item icon Domains, websites, email, and social media accounts
      The purchase agreement needs to provide for the transfer of rights to any key domains, websites, email addresses, and social media accounts.

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    • Item icon Franchise agreements
      If a franchise agreement is a major component of a sale, the parties should ensure that the agreement and rights attached to it can be transferred to the purchaser. The franchisor’s consent may be required. There may be exceptions allowed in certain circumstances, such as in the case of ...

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    • Item icon Licence agreements
      There may be several key licences that affect the business’s everyday operations. For example, the business could use various software or service subscriptions which are licensed from third parties. It needs to be established early on whether third parties will allow the business to continue to use ...

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    • Item icon Service agreements
      The purchaser may want to continue to use key services used by the vendor in the business, such as software developers, lawyers, bookkeepers, or delivery companies. In some instances, these services will be important to the continuing success and operation of the business. If there is no agreement ...

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    • Item icon Agency and distribution agreements
      If the vendor maintains an agency or distribution arrangement with any supplier, vendor, or service provider, an assignment or change of ownership needs to be considered. If the underlying agency or distribution agreement does not prohibit the assignment of the contract and does not allow the ...

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    • Item icon Suppliers and customer contracts
      Certain businesses may also have exclusive arrangements with suppliers or customers. Assignment of these contracts needs to be considered. In relation to customers, there are additional considerations as customer contracts generally allow customers to terminate the agreement more freely than the ...

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    • Item icon Tax obligations
      Sales tax payment obligations Sales taxes are generally levied by both the federal and provincial governments and are collected by the federal government directly for distribution to the provinces as applicable. Ontario levies a sales tax of 8%, and the federal government charges 5%, which makes ...

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    • Item icon Bank accounts
      The authorized signatory for the business bank accounts will usually have to be updated, and the bank notified as to the change of ownership. The process will vary from bank to bank. It is useful to specify the vendor’s responsibility in the purchase agreement.

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    • Item icon Insurance
      An insurance policy may cover certain business functions, physical property, or intellectual property. For example, the business may have public liability insurance. It is important to determine whether the vendor can transfer the insurance coverage to the new purchaser or if the insurance coverage ...

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    • Folder icon Library of agreements, contracts, licences, assignments, and transfers
      • Item icon Transfer of domain name
      • Item icon Asset transfer agreement
      • Item icon Agreement for sale of personal property
      • Item icon Letter to landlord's lawyer seeking assignment of lease
      • Item icon Assignment of lease
      • Item icon Deed of assignment of agreement
      • Item icon Deed of restraint of trade
      • Item icon Distribution agreement
      • Item icon Option to purchase agreement - Business
  • Folder icon E. Signing
    • Item icon Letter to other side's lawyer submitting purchase agreement
    • Item icon Letter to client to come and sign purchase agreement
    • Item icon Letter to client with purchase agreement for signing
    • Item icon Letter to other side's lawyer with signed purchase agreement
    • Item icon Letter to broker confirming purchase agreement signed
    • Item icon Letter to client following signing
  • Folder icon F. Mid-transaction
    • Item icon Conditions precedent
      The purchase agreement may require various conditions to be met before the sale can be completed. Vendor training of the purchaser is a typical requirement, especially for service-based businesses or businesses where complex production methods are used. All transfers such as licences, intellectual ...

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    • Item icon Third-party escrow service
      Third-party escrow services can be engaged for closing. This could be a bank, financial institution, or a law firm that acts as the trustee or escrow agent. Typically, the purchaser and vendor submit their documents and funds to the escrow agent for examination. Funds are released to the vendor ...

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    • Item icon Time for closing
      The closing date is specified in the purchase agreement, which follows an established timeline. It is common to have a due diligence period of 60-90 days, which begins either from the execution of the term sheet or letter of intent or the signing of the purchase agreement. The purchase price ...

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    • Folder icon Library of common forms
      • Folder icon Canada Business Corporation Act
        • Item icon Articles of Amalgamation
        • Item icon Articles of Arrangement
        • Item icon Articles of Reorganisation
        • Item icon Articles of Revival
        • Item icon Initial Registered Office Address and Board of Directors
        • Item icon Restated Articles of Incorporation
      • Folder icon Canada Cooperatives Act
        • Item icon Annual Return
        • Item icon Articles of Amalgamation
        • Item icon Articles of Amendment
        • Item icon Articles of Arrangement
        • Item icon Articles of Continuance
        • Item icon Articles of Dissolution
        • Item icon Articles of Incorporation
        • Item icon Articles of Reorganisation
        • Item icon Articles of Revival
        • Item icon Change of Registered Office Address
        • Item icon Changes Regarding Directors
        • Item icon Initial Registered Office Address and Board of Directors
        • Item icon Restated Articles of Incorporation
        • Item icon Statement of Intent to Dissolve or Revocation of Intent to Dissolve
      • Folder icon Co-Operative Corporations Act
        • Item icon Articles of Dissolution
        • Item icon Articles of Incorporation of a Co-operative with Share Capital
        • Item icon Articles of Incorporation of a Co-operative without Share Capital
      • Folder icon Ontario Business Corporation Act
        • Item icon Articles of Amalgamation
        • Item icon Articles of Amendment
        • Item icon Articles of Arrangement
        • Item icon Articles of Continuance
        • Item icon Articles of Dissolution
        • Item icon Articles of Incorporation
        • Item icon Articles of Reorganization
        • Item icon Articles of Revival
        • Item icon Authorization to Continue Out of Business Corporations Act
        • Item icon Consent to Act as a First Director
        • Item icon Restated Articles of Incorporation
      • Folder icon Ontario Corporations Information Act
        • Item icon 2000 MCCR Annual Return and Guide
        • Item icon Annual Return and EFF Declaration and Guide
        • Item icon Initial Return Notice of Change Annual Return by an Extra-Provincial Foreign Corporation with Share
        • Item icon Initial Return Notice of Change Annual Return by an Ontario Corporation
        • Item icon Initial Return Notice of Change by an Extra-Provincial Federal Domestic Foreign Non-Share Corporation
      • Folder icon Registering a Business Name & Number
        • Item icon Amend a Business Name for a Corporation
        • Item icon Amend a Registration of a Business Name for a General Partnership or for a Limited Partnership
        • Item icon Amend a Sole Proprietorship
        • Item icon Cancel a Registration
        • Item icon Register a Business Name for a Corporation
        • Item icon Register a Sole Proprietorship
        • Item icon Renew a Registration
        • Item icon Request for a Business Number and Certain Program Accounts
  • Folder icon G. If required - Notices
    • Item icon Notice to complete
    • Item icon Notice of termination
    • Item icon Notice of rescission
    • Item icon Letter to other side serving notice
    • Item icon Letter to other side's lawyer serving notice
    • Item icon Letter to other side's lawyer disputing notice to complete
  • Folder icon H. Closing
    • Item icon Adjustments
      Occasionally the purchase agreement or term sheet stipulates that the purchase price is adjusted after closing to reflect a more accurate estimation of the value of the business. This is useful as some expenses, costs, and liabilities are difficult to ascertain prior to closing. The payment can be ...

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    • Item icon Closing adjustments sheet
    • Item icon Letter to client with closing figures and account for review
    • Item icon Letter to purchaser's lawyer with direction to pay
  • Folder icon I. Finalizing the matter
    • Item icon Final actions at closing and after closing
      Some of the possible actions required of the vendor to complete their obligations under the purchase agreement include:

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    • Item icon Letter to client finalizing the matter
    • Item icon Invoice recital - Sale of business
    • Item icon Closing the file
    • Item icon File closing checklist
  • Item icon Comments and suggestions for By Lawyers

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