Buying a business:
the checklist.

By Jonathan Kleiman, Barrister & Solicitor · Published June 2026

A good business at the wrong price — or with the wrong liabilities attached — can be a worse purchase than no business at all. The difference between a deal that builds your future and one that drains it usually comes down to two things: how the transaction is structured, and how thoroughly you do your homework before you pay. This checklist walks through both, the way a business purchase lawyer would, so you know what to look for and what to protect.

Who do you need on your team to buy a business?

Before you get far, line up a lawyer to structure the deal and run legal due diligence, an accountant to test the financials and tax, and — if you are borrowing — a lender early. Buying a business is a team sport. Bring on a lawyer (to structure the deal, run legal due diligence, and draft the agreement), an accountant (to test the financials and advise on tax), and, if you are borrowing, a lender early enough that financing does not become the bottleneck. Bringing the lawyer in before you sign anything — even a letter of intent — is one of the highest-return decisions you can make, because the structure and the early terms shape everything that follows.

Should I buy the assets or the shares of a business?

In an asset purchase you buy specific assets and generally leave the seller's liabilities behind (buyers usually prefer this); in a share purchase you buy the corporation and inherit everything, including its history. This is the foundational choice, and it changes almost everything else. There are two ways to buy a business:

• Asset purchase. You buy specific assets of the business — equipment, inventory, goodwill, contracts, the brand — and generally leave the seller's liabilities behind. You can choose what you take, you usually get a higher tax cost base in the assets, and you avoid inheriting unknown history. Buyers generally prefer this.
• Share purchase. You buy the shares of the corporation that owns the business, which means you inherit everything — assets and liabilities, contracts, tax history, and any hidden problems. Sellers often prefer this (it can be more tax-efficient for them), and sometimes it is necessary to keep valuable contracts, licences, or leases that cannot easily be transferred.

The right structure depends on tax, risk, and what makes the business valuable. It is the first thing to settle with your lawyer and accountant — and it determines how deep your due diligence needs to go (a share purchase demands more, because you are buying the company's entire past).

What is a letter of intent when buying a business?

A letter of intent sets out the proposed price, structure, timing, and key conditions before full due diligence — mostly non-binding, but the confidentiality and exclusivity provisions usually are meant to bind. Most deals begin with a letter of intent (LOI) or term sheet — a document that captures the proposed price, structure, timing, and key conditions before the parties invest in full due diligence and a definitive agreement. Most of an LOI is intentionally non-binding, but some parts usually are meant to bind: a confidentiality obligation and often an exclusivity (or "no-shop") period that stops the seller from shopping the deal while you spend money investigating it. Getting the LOI right matters — it frames the negotiation and flags the deal-breakers early.

Should I sign an NDA before reviewing the seller's financials?

Yes — before the seller hands over financials, customer lists, and contracts, both sides should sign a confidentiality / non-disclosure agreement so the information can only be used to evaluate the deal. A seller is about to hand you their financials, customer lists, contracts, and pricing. Before that happens, both sides should sign a confidentiality / non-disclosure agreement so the information can only be used to evaluate the purchase and must be returned or destroyed if the deal dies. It protects the seller, signals you are a serious and professional buyer, and is standard practice in any real transaction.

What is due diligence when buying a business?

Due diligence is the investigation you do before closing to confirm what you are actually buying — financials, corporate records, contracts, the lease, employees, IP, litigation, tax, and licences — so you can renegotiate, demand protection, or walk away. The goal is to surface problems before you pay. Work through these areas methodically:

• Financial. Several years of financial statements, tax returns, accounts receivable and payable, margins, and the quality of earnings. Are the numbers real and sustainable, or propped up by one big customer or a one-time event? Your accountant leads here.
• Corporate / legal. The corporation's minute book, share register, directors and officers, and good standing. A clean minute book matters enormously in a share purchase — gaps and errors become your problem.
• Contracts. Customer and supplier contracts, terms, and — critically — whether they can be assigned or contain "change of control" clauses that let the other side walk when the business is sold.
• The lease. For a location-dependent business, the commercial lease is often the most important asset. Can it be assigned? What is the remaining term, the rent, and the landlord's consent right?
• Employees. The workforce, compensation, length of service, employment agreements, and any liabilities. Employees come with the business in important ways (more below).
• Intellectual property. Who actually owns the brand, the trademarks, the software, the domain names, and the work product? IP that "everyone assumed" the business owned is a classic problem.
• Litigation and liabilities. Current or threatened lawsuits, judgments, liens, warranty claims, and regulatory issues. In a share purchase, these follow the company to you.
• Tax. Outstanding taxes, HST, payroll remittances, and the tax structure of the deal itself. Get specialized tax advice — the structure has large consequences.
• Licences and permits. Whatever the business needs to operate legally — and whether those transfer with the sale.

What does the purchase agreement do?

The purchase agreement is the document that actually governs the deal — it sets the price and payment (including any holdback or earn-out), what is being bought, the representations, warranties, and indemnities, and the conditions to closing. Once diligence is underway, the deal moves to a definitive purchase agreement — an asset purchase agreement or share purchase agreement. This is the document that actually governs the deal, and it is where your lawyer earns their fee. It sets out the price and how it is paid (including any holdback or earn-out), exactly what is being bought, the representations and warranties, the indemnities, the conditions to closing, and what happens if something goes wrong. Do not treat a purchase agreement as boilerplate — its allocation of risk is the whole point. Have it drafted or reviewed by a contract lawyer who does deals.

What are representations, warranties, and indemnities in a purchase agreement?

Representations and warranties are the seller's statements of fact about the business, and the indemnity is the seller's promise to compensate you — often capped, time-limited, and sometimes secured by a holdback — if one turns out false and you suffer a loss. These are your central protections in the agreement. The seller's representations and warranties are statements of fact about the business (the financials are accurate, taxes are paid, there is no undisclosed litigation, the business owns its key assets). If a representation turns out to be false and you suffer a loss, the indemnity is your remedy: the seller's promise to compensate you, often subject to caps, time limits, and sometimes secured by a holdback of part of the price. Negotiating the scope of these — what is promised, for how long, and up to how much — is one of the most important parts of any deal.

Can the seller compete against me after the sale?

Only if you let them — buyers normally require the seller to sign a non-compete and non-solicitation covenant, which Ontario's sale-of-business exception makes enforceable if it is reasonable in scope, time, and geography. You are buying goodwill — the relationships and reputation that make the business worth more than its equipment. A non-compete and non-solicitation covenant from the seller protects that, by preventing them from opening a competing shop down the street and taking the customers back. Ontario's general ban on employee non-competes contains a specific exception for the sale of a business, so a reasonable seller non-compete can be enforceable — see our guide on non-compete enforceability in Ontario. Make sure it is in the deal, and make sure it is drafted to be reasonable in scope, time, and geography so it actually holds.

Do I have to keep the seller's employees?

Under Ontario's Employment Standards Act, when a business is sold and employees keep working for the buyer, their employment is treated as continuous — so the buyer can inherit their accumulated length of service for notice, termination, and severance. Employees are not a detail — that inherited length of service is a real liability to price into the deal. Plan early: which employees are you keeping, on what terms, and who bears the cost of any terminations? This is a question for your lawyer well before closing.

Can the commercial lease be assigned to me?

For a location-dependent business, you need to confirm the remaining term, renewal options, and rent — and, crucially, whether the landlord must consent to an assignment of the lease to you and on what terms. If the business depends on its location, the lease can make or break the purchase. You need to know the remaining term, renewal options, the rent and additional rent, and — crucially — whether the landlord must consent to an assignment of the lease to you, and on what terms. A great business with a lease that expires in eight months, or a landlord who can refuse the assignment, is a very different purchase. Bring your commercial lease lawyer into this early.

How should I hold the business I am buying?

Most buyers incorporate a new company to acquire and hold the business — for liability protection and tax planning — rather than buying personally, and buyers with partners also need a shareholders' agreement from day one. Do not overlook how you take ownership. Most buyers incorporate a new company to acquire and hold the business, for liability protection and tax planning, rather than buying personally. If you are buying with partners, you also need a shareholders' agreement in place from day one. For the mechanics of setting up the acquiring company, see our guides to incorporating a business in Ontario and federal vs. Ontario incorporation.

How do you finance the purchase of a business?

Common structures include bank or BDC financing, a vendor take-back where the seller finances part of the price, and earn-outs tied to future performance — line up financing early and expect the lender to require security, often a personal guarantee. How you pay shapes the deal. Common structures include bank or BDC financing, a vendor take-back (the seller finances part of the price, which can also keep their interests aligned during the transition), and earn-outs tied to future performance. Line up financing early, understand the security the lender will require (often a personal guarantee), and make sure the purchase agreement's timing works with your financing conditions.

What happens at closing when you buy a business?

At closing the documents are signed, the money moves, the assets or shares transfer, and the ancillary pieces — lease assignment, employee paperwork, the non-compete, and corporate filings — are completed in the right order. A well-run closing is choreographed so nothing happens out of sequence. After closing, there is still work: notifying customers and suppliers, transitioning systems and bank accounts, and managing the handover period with the seller. The deal is not done when the cheque clears; it is done when the business is genuinely yours and running.

The buyer's checklist at a glance

• Assemble your team (lawyer, accountant, lender) early.
• Decide asset vs. share purchase with tax and legal advice.
• Negotiate a clear letter of intent with confidentiality and exclusivity.
• Sign an NDA before reviewing sensitive information.
• Run thorough due diligence across every area above.
• Negotiate strong representations, warranties, and indemnities.
• Secure a reasonable non-compete from the seller.
• Plan for employees and the successor-employer rule.
• Confirm the lease can be assigned on acceptable terms.
• Structure the acquiring entity and line up financing.
• Close cleanly and manage the transition.

Common mistakes buyers make

• Skipping or rushing due diligence because the business "feels right."
• Signing an LOI without legal advice and getting boxed in by its terms.
• Choosing the wrong structure and inheriting liabilities they never priced in.
• Treating the purchase agreement as a formality instead of the document that allocates risk.
• Forgetting the lease and the employees until closing is upon them.
• No seller non-compete, leaving the goodwill they paid for unprotected.

Every one of these is avoidable with the right advice at the right time. If you are considering a purchase — or a franchise — talk to a lawyer before you sign anything. Franchises carry their own protections and traps; our guide to buying a franchise in Ontario explains the disclosure rules.

What are holdbacks and earn-outs in a business purchase?

A holdback keeps part of the price in reserve for a set period to cover indemnity claims, while an earn-out ties part of the price to the business hitting agreed targets after closing. Rarely is the whole price paid in cash on closing; these two mechanisms spread risk and bridge gaps. A holdback keeps a portion of the price in reserve for a set period to cover indemnity claims — if the seller's representations turn out to be wrong, you have a ready source of compensation rather than chasing them afterward. An earn-out ties part of the price to the business hitting agreed targets after closing, which is useful when buyer and seller disagree on value or when much of the value depends on the seller's transition. Both are powerful, but the details matter enormously: exactly what triggers a holdback release or an earn-out payment, and how performance is measured, are where disputes are born. Negotiate them precisely.

What is different about buying a franchise?

Buying a franchise adds a franchise agreement, a disclosure document the franchisor must provide, ongoing fees and obligations, and the franchisor's consent to transfer — and Ontario franchise legislation carries specific disclosure rights and tight deadlines. If the business you are buying is a franchise, an extra layer applies. You are not just buying a business — you are entering a franchise system, with a franchise agreement, a disclosure document the franchisor must provide, ongoing fees and obligations, and the franchisor's consent usually required to transfer the franchise to you. Ontario has specific franchise legislation with important disclosure rights and tight deadlines. Buying a franchise deserves its own careful review — see our franchise lawyer page — and you should never sign the franchise paperwork without advice.

What are the main sources for financing a business purchase?

Beyond your own capital, the common sources are bank or institutional financing (usually requiring security and a personal guarantee), a vendor take-back where the seller finances part of the price, and earn-outs that defer part of the price. How you fund the deal shapes its structure and your risk. Beyond your own capital, the common sources are bank or institutional financing (which will scrutinize the business and usually require security and a personal guarantee), a vendor take-back (the seller finances part of the price, which also keeps them invested in a smooth transition), and earn-outs that defer part of the price. Get your financing lined up early — a deal that depends on financing you have not arranged can collapse late — and make sure the purchase agreement's conditions and timing align with your lender's requirements. Understand the security you are granting and what you are personally guaranteeing before you sign.

Key takeaways

Buying a business rewards preparation and punishes haste. Most of the risk is hidden until you go looking — so the buyer who structures carefully and investigates thoroughly is the one who does not get a nasty surprise after closing.

• Settle the structure first — asset vs. share purchase changes the tax, the risk, and how deep your diligence must go.
• Do real due diligence across financials, contracts, the lease, employees, IP, litigation, and tax — and use the findings to renegotiate or walk away.
• Make the purchase agreement work for you — strong representations, warranties, and indemnities, with a holdback where appropriate.
• Secure a reasonable seller non-compete to protect the goodwill you are paying for.
• Plan for the people and the place — the successor-employer rule and the lease assignment are easy to overlook and expensive to miss.

Get a lawyer involved before you sign the letter of intent, not after. The cost of good advice is small next to the price of an unprotected deal — and the difference shows up most when something turns out not to be as it seemed.

Frequently asked questions

What is the difference between an asset purchase and a share purchase?

In an asset purchase you buy specific assets of the business and generally leave most liabilities behind; you can pick what you want and often get a higher tax cost base. In a share purchase you buy the corporation itself, inheriting all of its assets and liabilities, contracts, and history. Buyers usually prefer asset deals; sellers often prefer share deals.

Why do buyers usually prefer an asset purchase?

Because an asset purchase lets the buyer choose which assets to acquire, generally leaves unknown and historic liabilities with the seller, and often gives a tax step-up in the cost of the assets. A share purchase brings the whole company — including its skeletons — so it demands deeper due diligence.

What is due diligence when buying a business?

Due diligence is the investigation a buyer does before closing to confirm what they are actually buying — reviewing financials, contracts, leases, employees, intellectual property, litigation, tax, and corporate records. Its purpose is to find problems before you pay, so you can renegotiate, get protection, or walk away.

What is a letter of intent?

A letter of intent (LOI) sets out the key proposed terms of the deal — price, structure, timing, exclusivity, and conditions — usually before full due diligence and the definitive agreement. Most of it is non-binding, but certain parts (such as confidentiality and exclusivity) are typically meant to bind.

Should I sign an NDA before reviewing the seller’s financials?

Yes. Before a seller hands over sensitive financials, contracts, and customer information, both sides should sign a confidentiality / non-disclosure agreement so the information can only be used to evaluate the deal. It protects the seller and sets a professional tone.

Do I have to keep the seller’s employees?

It depends on the deal structure, but Ontario’s Employment Standards Act treats employment as continuous when a business is sold and the employees keep working for the buyer. That means the buyer can inherit length-of-service obligations such as notice and severance, so employees are a key due-diligence item.

Can the seller compete against me after the sale?

Only if you let them. Buyers normally require the seller to sign a non-compete and non-solicitation covenant as part of the sale to protect the goodwill being purchased. The sale-of-business exception means such a non-compete can be enforceable in Ontario if it is reasonable.

What is a representation and warranty in a purchase agreement?

Representations and warranties are statements of fact the seller makes about the business — that the financials are accurate, that there is no undisclosed litigation, that taxes are paid, and so on. If they turn out to be false, the buyer may have an indemnity claim. They are a core protection in any purchase agreement.

What is an indemnity in a business purchase?

An indemnity is the seller’s promise to compensate the buyer for specified losses — for example, a tax reassessment for a pre-closing period or an undisclosed liability. Indemnities are often capped, time-limited, and sometimes backed by a holdback of part of the purchase price.

Do I need a lawyer to buy a business?

For anything beyond the smallest deal, yes. A lawyer structures the transaction, runs legal due diligence, drafts and negotiates the purchase agreement, handles the lease assignment and employee issues, and manages closing. The cost is small relative to the price of an unprotected deal that goes wrong.

How long does it take to buy a business?

It varies widely. A small, clean asset deal can close in a few weeks; a larger share purchase with extensive due diligence, financing, and third-party consents can take several months. The diligence and the negotiation of the agreement are usually the longest stages.

What happens at closing?

At closing, the parties sign the final documents, the purchase price (and any holdback) changes hands, the assets or shares transfer, and ancillary items — the lease assignment, employee paperwork, non-compete, and corporate filings — are completed. A well-run closing has been set up so that everything happens in the right order on the same day.

Talk to a Toronto business lawyer

Thinking of buying a business in Ontario? Get the structure and the protections right from the start. Call 416-554-1639 or book a free consultation.