Buying or Selling a Business in Mississauga

Share deal or asset deal

This is the first substantive decision and it puts buyer and seller on opposite sides.

In a share purchase, the buyer acquires the corporation itself, and with it every asset, contract, employee, and liability, including liabilities nobody has found yet. Sellers prefer it: it is a clean exit, and where the shares are qualified small business corporation shares the seller may shelter a substantial capital gain using the lifetime capital gains exemption.

In an asset purchase, the buyer acquires specified assets and assumes only specified liabilities. Buyers prefer it: unknown liabilities are left behind and the purchase price can be allocated to depreciable assets for a stepped-up cost base. Sellers resist it because the proceeds land in the corporation, and getting them out to the shareholder personally triggers a second layer of tax.

The gap between those two positions is real money, and it is usually bridged in the price rather than the structure. Neither answer is right in the abstract; it depends on the tax position of both parties, the liability profile of the business, and what the contracts and licences permit.

The letter of intent is not a formality

An LOI or term sheet is normally non-binding as to the purchase itself, but it sets the commercial frame, and in practice it is very hard to reopen a point once conceded there. Certain provisions are also genuinely binding, exclusivity, confidentiality, and who bears costs.

Get advice before signing the LOI, not after. By the time the definitive agreement is being drafted, the leverage has usually gone.

Due diligence, from the buyer side

What you are looking for is the gap between what you have been told and what is documented.

• Corporate records: minute book, share register, and whether the people selling actually own what they are selling
• Financial statements, tax filings, and confirmation that HST and source deductions are current
• Material contracts, and critically, whether they contain change-of-control or anti-assignment clauses
• Customer concentration: how much of the revenue walks out with one relationship
• Employment agreements, termination exposure, and any unwritten arrangements
• Leases, and whether the landlord’s consent to assignment can be obtained
• Intellectual property, and whether it is actually owned by the corporation rather than by a founder personally
• Litigation, claims, and regulatory compliance
• Liens and security registered under the Personal Property Security Act

Preparing to sell

Sellers who start the legal work eighteen months before going to market get materially better outcomes than sellers who start when the offer arrives.

• Bring the minute book current; gaps here delay closings and give buyers a discount argument
• Confirm the share structure and whether QSBC status is available; purifying a corporation takes time and cannot be done on the eve of a sale
• Put key customer and supplier relationships into signed contracts
• Get employment agreements signed, with proper termination provisions
• Confirm the corporation owns its intellectual property, including work done by contractors
• Clear old PPSA registrations that should have been discharged years ago
• Resolve outstanding disputes rather than disclosing them mid-negotiation

Where the risk actually sits

Representations and warranties allocate risk for what is unknown at closing. Their value depends entirely on the qualifications around them, materiality thresholds, knowledge qualifiers, the survival period, the cap on liability, and the basket that must be exceeded before a claim can be made.

Holdbacks and escrows keep part of the price available to satisfy a claim. Earn-outs bridge a disagreement about value by tying part of the price to future performance, and are a reliable source of litigation unless the measurement is defined with real precision, including who controls the business during the earn-out period.