Share purchase agreement
lawyer Toronto.
Buying or selling the shares of an Ontario company? Jonathan Kleiman drafts, reviews and negotiates share purchase agreements for buyers and sellers, from the first draft through closing.
Already have a draft? Discuss a review before you sign. You can scope the agreement review separately from the full transaction.
· Reviewed by Jonathan Kleiman, J.D.
Ontario Bar
250+ reviews
consultation
A share purchase agreement lawyer for buyers and sellers
A share purchase agreement is the contract under which the shareholders of a company sell their shares to a buyer. The company stays exactly as it was, with the same assets, contracts, employees and debts. Only its owner changes.
That's why most of the agreement is about risk. The buyer takes the company with its whole history, so the buyer wants written promises about that history and a way to recover money if a promise is false. The seller wants to be paid and to know when the deal is truly finished. Jonathan Kleiman is a Toronto business lawyer who drafts and negotiates these agreements for either side, on deals from small owner-managed companies to multi-million-dollar acquisitions.
- Buyers acquiring all of the shares of an Ontario company, or a majority or minority stake.
- Owners selling their company and negotiating what they stay responsible for after closing.
- Co-owners buying out a partner, or a manager or investor buying in.
- Anyone handed a draft by the other side's lawyer or a broker who wants it reviewed before signing.
Every engagement begins with a free 30-minute consultation. Bring the letter of intent or the draft agreement if you have one.
What a share purchase agreement covers
Share purchase agreements follow a familiar order. This is what each part does and where the negotiation usually happens.
| Section | What it does | What to watch |
|---|---|---|
| Purchased shares and price | Identifies the shares, the price, and how and when it's paid | Whether every shareholder is selling, and how much is paid at closing versus later |
| Price adjustment | Adjusts the price for the company's cash, debt and working capital on the closing date | How working capital is defined and who decides a disagreement about the numbers |
| Representations and warranties | The seller's promises about the company: its shares, finances, taxes, contracts, employees and disputes | Knowledge and materiality qualifiers, and what the disclosure schedules carve out |
| Covenants | What each side must do before and after closing, including how the company is run in the meantime | Limits on the seller taking cash out or making big decisions before closing |
| Conditions of closing | What has to happen before either side is obliged to close | Financing, consents, and whether a buyer can walk away after a bad surprise |
| Indemnity | How the buyer is compensated if a promise is false or an old liability surfaces | Caps, minimum claim thresholds, time limits and whether a holdback secures payment |
| Restrictive covenants | Stops the seller from competing with the company or soliciting its customers and staff | Length, territory and the activities covered, which have to be reasonable to be enforced |
| Closing deliveries | Lists what changes hands at closing: share certificates, resignations, releases, consents and the minute book | Proof that the share transfer was properly approved and that the records are complete |
From first draft to closing: how a share purchase agreement comes together
Many small and mid-sized share purchases close 4 to 12 weeks after the letter of intent. Most of that time goes to due diligence and to negotiating the seller's promises.
Structure and LOI
The parties agree that the deal is for shares, not assets, and set the price and main terms in a letter of intent. Tax advice from each side's accountant belongs here.
First draft
The buyer's lawyer usually prepares the first draft. It tends to favour the buyer, with broad promises from the seller and a wide indemnity.
Due diligence
The buyer reviews the minute book, contracts, lease, employees, tax filings, lawsuits and registered security. What it finds shapes the promises it asks for.
Negotiation and schedules
The lawyers trade drafts. The seller prepares disclosure schedules listing the exceptions to each promise, which is where many problems are either disclosed or missed.
Signing and conditions
The agreement is signed, and the parties work through the conditions: financing, third-party consents, and approval of the share transfer.
Closing and after
Shares and funds change hands, directors and officers are replaced, and the registers are updated. Price adjustments, holdbacks and indemnity claims follow later.
The guide to letters of intent and term sheets explains which early commitments are binding.
The clauses that get negotiated hardest
Representations and warranties
These are the seller's statements of fact about the company: that the financial statements are accurate, the taxes are filed and paid, the contracts are in good standing, and there are no lawsuits beyond the ones listed. A buyer wants them broad and unqualified. A seller wants them limited to what the seller actually knows and to matters that are material. The disclosure schedules matter as much as the promises, because anything properly disclosed there generally can't be the basis of a claim later.
Indemnity: caps, thresholds and time limits
The indemnity turns a false promise into a right to be paid. Sellers negotiate a cap on their total exposure, a minimum threshold before any claim can be made, and a survival period after which the promises expire. Ontario's basic limitation period is two years from when a claim is discovered, but section 22 of the Limitations Act, 2002 lets the parties to a business agreement change that period. The survival clause should say plainly how long the buyer has to bring a claim, with longer periods for tax and for ownership of the shares where the parties agree to them.
Price adjustments, holdbacks and earn-outs
The price in the letter of intent usually assumes a normal level of working capital and no unexpected debt. The adjustment clause trues that up after closing, and its definitions decide real money. A holdback keeps part of the price in trust to cover adjustments and indemnity claims. An earn-out ties part of the price to future results, and it needs clear rules on how results are measured and how the buyer may run the company in the meantime (see the guide to earn-outs in a business sale). Part of the price can also be paid over time through a vendor take-back loan.
The seller's non-compete
A buyer paying for goodwill will ask the seller not to compete or solicit customers and staff for a period after closing. Ontario courts enforce these covenants in a sale of a business when their length, territory and scope are reasonable. Ontario's ban on employee non-competes has an exception for a seller who becomes the buyer's employee right after the sale. The guide to non-competes when buying or selling a business covers what's reasonable.
Releases, resignations and shareholder loans
At closing the outgoing directors and officers resign, and the sellers usually release the company from claims they may have against it. Money the company owes its shareholders, or that they owe the company, should be repaid, forgiven or assigned as part of the deal so that nothing is left hanging afterward.
Have a draft share purchase agreement?
Send it over before you sign. Free 30-minute consultation.
Approvals, tax and contracts: what a share deal changes and what it doesn't
Approving the transfer
The articles of most private Ontario companies restrict share transfers, typically by requiring the directors' consent. A shareholders' agreement may add a right of first refusal, a tag-along right or a drag-along right. Each has to be followed or waived in writing, and the buyer's lawyer will ask to see it. An incomplete or out-of-date minute book is one of the most common reasons a share deal stalls, because the buyer can't confirm who actually owns the shares.
Tax
The sale of shares doesn't attract HST. On the income tax side, a seller may be able to shelter part of the gain with the lifetime capital gains exemption where the shares qualify, which is a main reason sellers ask for a share deal. Whether the shares qualify, and whether the company needs to be reorganized first, are questions for an accountant, and they're best asked long before a buyer appears.
Employees, contracts and the lease
The company remains the employer, the tenant and the contracting party, so in principle nothing has to be transferred. The exception is a change-of-control clause. Many commercial leases, loan agreements, franchise agreements and larger customer contracts treat a change in ownership like an assignment and require consent. Finding those clauses is part of due diligence, and getting the consents is usually a condition of closing.
Buyer or seller: what to look for in the draft
If you're the buyer
- Promises that cover the company's whole history, including taxes and employees, not only the period you were shown.
- An indemnity backed by a holdback or other security, so a claim is worth something.
- Conditions that let you walk away if financing, consents or due diligence fall through.
- A non-compete and a transition commitment from the people who built the goodwill.
If you're the seller
- Promises limited by knowledge and materiality, and disclosure schedules that are complete.
- A cap on indemnity claims and a clear date after which the promises expire.
- Security for any part of the price that's paid after closing.
- A release from personal guarantees you gave for the company's lease or loans.
How Jonathan helps with a share purchase agreement: scope and fees
You can hire Jonathan to draft the agreement, to review and negotiate a draft from the other side, or to handle the whole transaction. The fee is quoted after he sees the deal and before any work begins. The guide to what a business lawyer costs in Toronto explains what drives legal fees on a transaction.
The services below can form part of your engagement. Your quote confirms which work and deliverables are covered by the agreed fee.
Services we can scope
- Free 30-minute consultation about the deal
- Drafting the share purchase agreement, or reviewing the other side's draft
- Negotiating representations, the indemnity, price adjustments and holdbacks
- Preparing or reviewing the disclosure schedules
- Legal due diligence for buyers: minute book, contracts, lease, employees, and security and litigation searches
- Non-competition, non-solicitation and transition terms
- Director and shareholder approvals, waivers under a shareholders' agreement, resignations and releases
- Closing documents, plus minute book and Ontario Business Registry updates
Not included
- Tax advice on structure, the capital gains exemption and reorganizations, which your accountant should give
- Financial due diligence on the statements and tax filings, also your accountant's job
- Business valuations, which come from an independent valuator, usually a Chartered Business Valuator
- Public company and securities-regulated transactions, which need securities counsel
- Superior Court proceedings if a deal ends in a larger dispute. Jonathan refers these to trusted litigation counsel.
Call 416-554-1639 or book a free consultation. If your deal is for the business's assets and not its shares, see the page on asset purchase agreements.
FAQs.
Common questions about share purchase agreements in Ontario.
What is a share purchase agreement?
It's the contract under which the shareholders of a company sell their shares to a buyer. The company itself doesn't change: it keeps its assets, its contracts, its employees and its debts, and only its owner is new. Because the buyer takes the company as it is, most of the agreement deals with what the seller promises about the company and what the buyer can recover if those promises turn out to be wrong.
What is the difference between a share purchase agreement and an asset purchase agreement?
In a share purchase you buy the company that owns the business, along with its whole history. In an asset purchase you buy selected assets from the company, such as equipment, inventory, goodwill and contracts, and most past liabilities stay with the seller. Share deals need fewer transfers and consents but more protection against unknown liabilities. Asset deals need more paperwork to move each asset, the lease and the staff.
Who drafts the share purchase agreement, the buyer or the seller?
By convention the buyer's lawyer prepares the first draft, because the buyer is the one relying on the seller's promises. That isn't a rule, and in smaller deals the first draft sometimes comes from the seller's lawyer or a broker. Whoever drafts first sets the starting point, so the other side should have its own lawyer review the draft before any terms are accepted.
Do I need a lawyer for a share purchase agreement in Ontario?
No law requires one. But a share purchase transfers a company with every liability it has, known or not, and the agreement is the only place a buyer gets protection against that. For a seller, the agreement decides how much of the price can be clawed back after closing and for how long. Both sides are usually better off with their own lawyers, and one lawyer can't act for both.
How much does a lawyer charge for a share purchase agreement?
It depends on the size of the deal, how much due diligence is needed, whether Jonathan is drafting the agreement or reviewing the other side's draft, and how many related documents are involved. He looks at the deal in a free 30-minute consultation and quotes the fee before any work begins.
How long does a share purchase take to close?
Many small and mid-sized share purchases close 4 to 12 weeks after the letter of intent. Due diligence and negotiating the seller's representations take most of that time. Bank financing, a landlord's or lender's consent under a change-of-control clause, and a minute book that needs repair are the usual causes of delay.
Is HST charged on a share purchase?
No. The sale of shares doesn't attract HST. Income tax is a separate question: a seller may be able to use the lifetime capital gains exemption where the shares qualify, which is a main reason sellers prefer share deals. Whether your shares qualify is a question for your accountant, and it's worth asking well before the sale.
Does the company or the other shareholders have to approve a sale of shares?
Often, yes. The articles of most private Ontario companies restrict share transfers, typically by requiring the directors' consent. A shareholders' agreement may add a right of first refusal, a tag-along right or a drag-along right that has to be followed or waived. The buyer's lawyer will ask for proof that each of these steps was taken before closing.
How long can a buyer make a claim against the seller after closing?
For as long as the agreement says. Most share purchase agreements include a survival clause that sets how long the seller's representations last, often with longer periods for tax and ownership of the shares. Ontario's basic limitation period is two years from when a claim is discovered, but section 22 of the Limitations Act, 2002 lets the parties to a business agreement change it, so the wording of the survival clause matters.
Can I buy only some of the shares?
Yes. A buyer can purchase all of the shares, a majority or a minority stake, and the same kind of agreement is used. If you won't own the whole company afterward, you'll also want a shareholders' agreement with the remaining owners that covers decision-making, dividends, and how any of you can exit later.
Signing a share purchase agreement? Have it reviewed first.
Send the draft or the letter of intent before you commit. Free 30-minute consultation with a Toronto share purchase agreement lawyer.