Buying Or Selling A Business

Whether you are buying or selling a business, there are many decisions to be made, there is typically an in-depth due diligence process, there will be negotiations and ultimately a contract will be drafted and executed.

One of your first decisions will be how the deal is structured – it may be an asset or a share purchase.

As the name indicates, in an asset purchase only the assets of the business are sold. In a share purchase the shares of an incorporated company are sold. There are pros and cons to both situations. An experienced business lawyer will help you evaluate your options and determine what makes the most sense.

The sale/purchase of a business requires a lot of time, knowledge and experience. A lawyer can help you navigate the process and understand the pros and cons of your various options and ensure that your rights are represented and protected in the process.

Regardless of which agreement you use, whether it be an Asset Purchase Agreement, Share Purchase Agreement, or Agreement of Purchase and Sale, it will have a closing date. The Closing Date is the date that both parties agreed that the transaction will officially occur. Often the closing date occurs 30 to 60 days after an Agreement is signed.

At the end of the process, when you sit down to sign a purchase agreement, it’s an exciting moment. However, that often follows countless hours of due diligence, communication, negotiations, poring over documents. It can be a long process – and it’s critical that you remain alert to the details through the process to avoid costly mistakes in the process.

Your agreement will cover demands and obligations of each party, as well as the terms of the agreement (ex: you may have a non-compete clause).

Purchaser Considerations

There are a number of issues a prospective purchaser must consider before buying a business. Before purchasing any shares or assets, it is important to examine and research the business to ensure you are in fact getting what you think you are.

In an Asset Purchase, the buyer acquires selected assets. Most, of the liabilities remain with the seller.

Conversely, in a Share Purchase, the buyer purchases all the shares of a company, which transfers all of the company’s assets and liabilities to the purchaser.

There are tax and legal implications to both options. Working with a lawyer will help you determine which scenario is best for you.  

Buying or selling a business

Due Diligence

The transaction type will determine what due diligence is needed. In an Asset purchase, you will need to find out if there are any liabilities and then you can determine if they will be recorded as excluded assets. In a Share Purchase, the purchaser would ensure they are fully informed of all liabilities, burdens, and problems of the business. Once the transaction is complete, these become the responsibility of the new owner.  A lawyer can help conduct due diligence for you, one example is creditor searches.

The amount of Due Diligence that should be conducted will be dependent on:

  • the level of familiarity of the Purchaser with the company being acquired
  • the value of the transaction
  • the type of business being acquired
  • the type of transaction (Share Purchase or Asset Purchase)

An Agreement of Purchase and Sale

An Agreement of Purchase and Sale will need to be written and signed when a business is bought/sold. This agreement describes specifically what is being bought/sold, and for how much. 

Before the agreement can be created, you must determine several things. A value must be put on the business. Typically an accountant will be required to do this. Some of they would consider are:  business profits over the last few years, the business assets, and the reputation of the business.

If you are buying a corporation, you need to know whether you are buying the assets or the shares of the corporation. Buying assets is essentially purchasing individual pieces of the business. You can decide which pieces you want. This also allows you to decide which liabilities you want to take on. Note that any liabilities you do not take on remain the responsibility of the seller of the assets. If you buy the shares of the corporation, you are buying the entire corporation. All the assets and liabilities are included. There are complex tax consequences associated with both the purchase of assets and the purchase of shares. A lawyer can advise you what is best for your circumstances.

Lawyer to assist with buying or selling a business

Retaining a Lawyer

Retaining a lawyer to assist with any transaction is crucial. You should not sign anything, not even an NDA without first retaining a lawyer. Do not sign any document, even a Non-Disclosure Agreement, without first retaining counsel. You need the experience and expertise

Your lawyer will also draft an agreement, satisfy the conditions to the agreement, and draft closing documents. Closing documents can be complex and typically require filings with either the provincial or federal government. Each business also requires various consents, permits or licenses. An experienced lawyer will know all this and ensure you don’t end up in a bad situation by leaving something out.

Buying or selling a business is a big transaction and errors could be costly. Ensure you get the protection you need.


It is common that the completion of the transaction is conditional upon certain items. It may be conditional upon the purchaser getting financing or on the items essential to the running of the business being delivered. Often it is conditional on the purchaser reviewing financial statements.  The deal is not finalized until the conditions are satisfied.

This post is an overview of the basics of buying or selling a business. It is a complex process with approximately 25 documents and agreements and forms that need to be drafted, satisfied, execute and filed. There are countless decisions and often there are more questions than answers. The guidance of an experienced business lawyer is priceless. Whatever you pay is nothing compared to what could happen if you make a bad decision or fail to properly complete part of the process.

Learn more about how CEO Law can help you with buying or selling a business.

This material is for general information purposes only. It is not intended to provide legal advice or opinions of any kind and may not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice. The information is provided for your convenience only. These materials may have no evidentiary value and should be checked against official sources before they are used for professional or commercial purposes. It is your responsibility to determine whether these materials are admissible in a given judicial or administrative proceeding and whether there are any other evidentiary or filing requirements. Your use of these materials is at your own risk.

Leave a Reply