Do’s and Don’ts of Buying a Business in Ontario

Disclaimer: This article on The Dos and Don’ts of Buying a Business in Ontario is intended for the purposes of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

You have found an incredible business opportunity and great news! The owner wants to sell it to you. Immediately, you start dreaming of the next steps after buying the business. But before you get too ahead of yourself, let’s take a step back. In our experience, quick decisions often lead to lengthy regret.

There are many things to consider when making this decision. If you’re not careful, you could end up making a mistake that costs you time, money, and headaches. In this blog post, we’ll discuss what to do, and what to avoid, when buying a business in Ontario – so that you can make an informed decision and avoid common pitfalls.

Of course, if you are considering buying a business and want to make sure your transaction is as smooth as possible, book your complimentary consultation today. Our team would be more than happy to speak with you about the specifics of your purchase.

DON’T: Rely on verbal agreements.

“He said, she said” will not protect you if something goes wrong. You need a properly drafted agreement prepared by a lawyer.  Speaking of which…

DO: Hire a lawyer and an accountant

“But I know the seller”

It doesn’t matter if it is your best friend, your cousin, or your dog-walker. Hire a professional to help you navigate the legalities and finances of the purchase. They will help ensure that everything is above board and that you are getting what you think you are paying for.

Your lawyer will ensure that you have negotiated and agreed upon all the important terms in the purchase agreement, including many that you had not even considered. Your accountant will help you understand the financials of the business and will have advice on how to structure the transaction to minimize any tax implications.

We cannot stress enough how vital it is that you have professionals on your team to advise you.

DON’T: Underestimate the importance of due diligence

You wouldn’t buy a home without first taking a look inside, would you? The same logic applies when buying a business.

You need to understand all aspects of the business before making an offer. This includes everything from the financials to the contracts to the relationships with vendors and customers.

DO: Consider what happens after the transaction has been completed

In addition, you also need to ensure you know what liabilities the company has, because you may be taking on some of those liabilities with the purchase. This includes remittances and accounts payable, as well as any current or future litigation.

You need to be clear when that liability begins – for example if someone is injured using the business’ assets, who is liable for that injury?

If the existing business has employees, you must consider how you will treat those employees. You will want to ensure you know what your obligations are under the Employment Standards Act.

DON’T: Assume you know what is included in the sale

This sounds very basic, but it is a mistake that many buyers make. They assume that because they are buying the business, they are buying the name, customer list, inventory, and all of the other assets.

In reality, you need to specifically negotiate what your purchase includes. Otherwise, you may find yourself without some of the key components needed to run the business because expectations are different post-closing.

DO: Ensure you have the proper third-party approvals if necessary.

While the agreement may be between you and the seller, you may need to consider other parties when buying a business.

One example that comes to mind relates to leased properties. If part of the sale includes assigning the lease of any property, does the landlord need to be notified?  Can the seller assign the lease or will you be negotiating a new lease with the landlord?

Or, if you are taking over a regulated business, does the regulator need to approve the transfer? If the business holds a license to be able to operate, is that transferable? 

If the business is owned by a corporation, do you have approval from the shareholders?  Is there anything in the Articles of Incorporation that prevents you from purchasing this business?

If you are a professional, within a professional corporation, and now you’re trying to use that corporation as a vehicle to purchase another business and run that business through, you need to double-check if you can actually do that. Your articles of incorporation may prevent you from running that kind of business through it.

These are all important questions that need to be answered before you can proceed with the purchase.

DON’T: Delay in contacting Beeksma Law.

At Beeksma Law, our team of experienced business lawyers can help you with all aspects of buying a business. We can help you negotiate the purchase agreement, understand the due diligence process, and get the proper approvals in place.

Our experienced business lawyers have negotiated successful transactions and handled the litigation files that result from improperly planned transactions. That vantage point gives us an edge in helping our clients plan and execute transactions while avoiding any pitfalls or other potential problems down the road.

If you are considering buying a business in Ontario, or have already started the process, contact Beeksma Law today to ensure your transaction goes smoothly.