Canada: Key Legal Issues And Considerations When Preparing To Sell A Business

While most are well aware that the sale of a business is generally a complex and time-consuming process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale process.

At Wildeboer Dellelce LLP, we regularly work alongside business owners in preparing for the sale of a business and have advised on hundreds of business sale transactions. From this vast experience, we have prepared the following brief overview of some of the most important legal issues that a vendor should consider when preparing for the sale of its business.

  1. Tax.The tax implications arising from the sale of a business is a key legal issue that all vendors should consider and prepare for well in advance of a proposed sale of the business. In general terms, there are three typical alternatives to structuring the sale of a business: an asset sale, share sale or a hybrid sale (which is a combination of both an asset and share sale). The ideal structure for the vendor will depend upon a number of factors including the availability of the vendor's capital gains exemption, the composition of the business assets and the relevant tax attributes available. Given this, obtaining tax advice as early as possible is recommended as this can facilitate the vendor dictating the form of the transaction and can provide sufficient time for the vendor to explore any planning opportunities that may be available.
  2. Financial statements.The valuation of a business requires access to hard numbers. As such, purchasers will often request audited or unaudited financial statements for a certain number of years, together with supporting information regarding your sales pipeline, cost of sales and other related financial and accounting information. If you are a private company that has not kept your financial records in order, it may be time to get in touch with your auditor or accountant.
  3. Legal agreements. If any of your current business relationships are being conducted pursuant to oral agreements or understandings you should look into formalizing those agreements in writing as most purchasers will require written agreements. In addition, if any agreements are missing signatures from the counterparty, ensure you have those parties execute the agreement. This issue is of particular importance with respect to those agreements which are material to your business.
  4. Registered owner. A buyer will want to see evidence of ownership of all assets that a vendor is transferring as part of the sale transaction. A common issue faced by many businesses is that certain assets, often real property or intellectual property, are held in the name of the founder or a related individual or entity as opposed to the company to be sold as part of the transaction. To avoid issues during the due diligence process, it is advisable to consider transferring all assets that are used in the business so that they are held in the name of your company or one of its direct subsidiaries, subject of course to an assessment of the relevant tax and other implications of transferring those assets. Leaving this until you are engaged in the sale process presents risks, including the prospect of the registered owner of such assets leveraging an impending sale to ask for greater consideration for their transfer.
  5. Consents. Many commercial contracts include a clause which either requires the consent of or notice to the counterparty prior to the sale of all or substantially all assets or a change of control of the company. It is important to carefully review all contracts to which your company is a party to ensure that you are aware of contracts with those types of clauses. Doing so prior to engaging in the sale process will ensure you are able to more accurately assess the time required to complete a sale of your business and identify any potential risks and challenges in securing the required consents.
  6. Employees. While the addition of employees is generally a sign that your company is growing, keep in mind that if a purchaser is unwilling to inherit all of your employees, you may very well be obligated to pay severance payments associated with the termination of certain employees upon completion of the sale transaction. A careful review of applicable employment legislation and employment agreements in place can assist in determining termination costs, and help guide your growth strategy.
  7. Minute books and registers. When acquiring a business, purchasers will want to review the company's minute books and shareholder, director and officer registers. Because most business owners are focused on the day-to-day operation of their business, it is not uncommon for the minute books to have been neglected. However, their significance to a buyer and the time and challenges of updating them should not be underestimated. We therefore recommend that business owners ensure that their minute books are properly maintained at least annually. Failing that, it is advisable to begin getting them in order well in advance of a proposed sale of the business.
  8. Debt agreements. If your business has incurred debt, you should review all agreements entered into with your lenders to determine whether a sale of your business would trigger any provisions in those agreements which may be adverse to the business. For instance, if a purchaser is unwilling to assume your debt, a prepayment penalty on the debt can add significantly to your transaction costs.
  9. Technological requirements. Another aspect of a sale transaction which comes as a surprise to many is the extensive use of technology during the sales process. During the due diligence stage, a vendor typically uploads a significant number of documents to a secured web-based portal, commonly referred to as a data site. Unless a substantial number of your records are already digitized, the process of scanning, uploading and managing documents on a data site can be labour-intensive and require investment in adequate equipment. Although many of these functions can be outsourced, consider whether you will need to add additional resources to meet these demands.
  10. Strong internal team. As you have gathered from reading through this list of potential legal issues, the sale of a business can be time consuming and require the resources of key personnel. In light of this commitment, it would be worthwhile to ensure you have an effective and competent team to run the business in its ordinary course and during the sale process.

This is particularly important if your sale agreement includes an earn-out provision which ties post-closing business performance to the consideration that you receive for your business.

While this list is not exhaustive, it highlights some of the key issues that vendors face when selling their business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.