Buying a business, while exciting, can be a complex and daunting experience. These key considerations will provide prospective purchasers with an overview of the process, and highlight the factors which should be top of mind at each stage.

The first question any prospective purchaser should ask themselves before proceeding with the acquisition of a business is: “What am I really buying?”.  A purchaser should understand exactly what they will receive in exchange for payment, and when, before signing any definitive agreement.  

Purchasers can attain a clearer idea of what they are truly acquiring, as well as the risks attaching to any prospective acquisition, by conducting the appropriate due diligence.

Due Diligence

Proper due diligence can save the parties to any acquisition transaction a great deal of time, effort and confusion as the transaction unfolds. Through this process, the buyer will, and should, try to learn as much as it can about the seller’s operations, and identify any additional risks which may not have been disclosed by the seller. At a minimum, the due diligence process typically involves a review of the seller’s financial statements, legal status, the nature and extent of the seller’s contingent liabilities, material or problematic contracts, litigation risks, intellectual property issues, employment and other potential liabilities, data breach and/or cybersecurity issues. This list is by no means exhaustive, and buyers should ensure that the due diligence is tailored to the industry in which the target business operates.

The results of the due diligence process will typically inform the structure of the transaction, help the buyer to better understand or negotiate the purchase price, and may give rise to a series of questions for the seller’s team. Purchasing a business without conducting proper due diligence substantially increases the risk to the purchaser. This is particularly true in private company acquisitions, in which the seller has not been subject to the scrutiny of the public markets.

Determining Deal Structure

There are two overarching options for structuring an acquisition transaction:  1) as an asset purchase or 2) as a share purchase. It’s worth noting that parties may also decide, at some point, on a merger.

An asset purchase requires the purchase by the buyer of individual assets of the target corporation. A share purchase typically requires the purchase of 100 percent of the issued and outstanding shares in the capital of the target corporation effectively transferring all of the company’s assets and liabilities to the purchaser. How to structure the transaction should be, at least in part, informed by strategic tax advice, which both parties should obtain in advance, as well as what is uncovered during the due diligence process. Both options come with their own set of specific considerations, risks and obligations. Parties may have unique circumstances, concerns or values which could influence their decision.

The Purchase Agreement

The purchase agreement, together with any schedules or exhibits which may be attached thereto, will set out the terms upon which the purchaser is acquiring the target business.  Purchase agreements can vary in length and form depending on the size and complexity of the transaction.

The Agreement should cover all the deal terms including, but certainly not limited to, the following overview:

  • Definitions for key terms of the agreement;
  • What is being sold and purchased;
  • The purchase price, terms of payment, including any security which must be obtained or discharged on closing, and potential price adjustments;
  • Representations and warranties from the seller with respect to the business together with corresponding disclosure schedules;
  • Representations and warranties from the purchaser with respect to legal status and authority to enter into the purchase agreement among other possible matters;
  • Covenants of the parties to carry out certain actions before or after closing including, for example, transition services;
  • Terms regarding how certain liabilities and/or tax matters will be addressed;
  • Conditions for the transaction to close;
  • The closing date and responsibilities and deliverables of the parties on the closing date; and
  • Miscellaneous matters such as notice provisions, the laws governing the terms of the purchase agreement, and how the purchase agreement may be amended, if necessary, in the future.

The above list is by no means exhaustive, and the provisions of any purchase agreement should be carefully curated to reflect the unique circumstances, concerns, risks, business relationships of the parties and future earning potential of the target business among many other factors.


The closing date typically refers to the date on which the transaction is completed. On the closing date, at least a portion of the purchase price is paid by the purchaser to the seller, and the ownership of the business is actually transferred to the purchaser.

As part of the closing the parties will need to prepare and sign the final closing documents to be exchanged on the date of (or one or two days prior to) the closing. Such documents include (but are not limited to) a certificate of an officer of the Seller attesting to the truth and accuracy of the representations and warranties of the Seller (including, without limitation, those made in the purchase agreement), resolutions of the shareholders and/or directors of the seller and purchaser authorizing the parties to complete the transaction, receipts for payment of the purchase price and certain other agreements or transaction documents which may have been negotiated in the purchase agreement.  

Having a  lawyer’s advice as one moves through an acquisition transaction can have long term advantages including the reduction of risk and liability prior to and post closing.  An approach informed by strategic advice from experienced counsel can accelerate the process and is more likely to result in a successful closing. We have acted on multi-million dollar acquisitions and sales of businesses in Canada for over 100 years. Please call Tanya Kuzman at 416.682.7076 or by email at if you are seeking assistance with the purchase of a business.

At Mills & Mills LLP, our lawyers regularly help clients with a wide range of legal matters including business lawreal estate lawestate lawemployment law, health law, and tax law. For over 130 years, we have earned a reputation amongst our peers and clients for quality of service and breadth of knowledge. Contact us online or at (416) 863-0125. The material provided through the Mills & Mills LLP website is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.

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