This primer is general information about how buying a business usually works in Canada. It has not yet been reviewed by a qualified professional in Canada. It is not legal, tax or financial advice, the rules change, and many of them are set by each province and territory, with Quebec's civil law system differing in important ways. Take advice from a Canadian lawyer and a chartered professional accountant on your own deal before you commit.
How deals are usually structured
Canadian acquisitions are either a share purchase or an asset purchase.
In a share purchase, you buy the shares of the corporation that owns the business. The corporation carries on with its contracts, permits, employees, tax history and liabilities. A change in who owns the shares does not change the tax values of the assets the corporation holds.
In an asset purchase, you buy the assets you want and take on only the liabilities you agree to. The price is allocated across the assets at fair market value, with any remainder treated as goodwill, and that allocation affects both your future tax deductions and the seller's tax bill.
Sellers often prefer a share sale. One reason is the lifetime capital gains exemption, which can shelter part of an individual's gain on qualified small business corporation shares but does not apply when a corporation sells its assets. Buyers often prefer assets for the cleaner liability position and the new tax values.
A typical process runs from a letter of intent, through due diligence, to a purchase agreement with representations, warranties and indemnities, often with a holdback or escrow of part of the price.
If the seller is not resident in Canada, section 116 of the Income Tax Act matters. When a non-resident sells taxable Canadian property, which can include real property in Canada and certain shares, the buyer can become liable for part of the seller's tax unless the Canada Revenue Agency issues a certificate of compliance. The rules entitle a buyer in that position to withhold part of the price.
Goodwill is the part of a purchase price above the value of a business's identifiable assets, less its liabilities. It reflects things like reputation, customer relationships and trained staff.
In an asset sale you buy selected assets of a business; in a share sale (a stock sale in the US) you buy the company itself, with its full history. The choice shapes risk, tax and what needs consent.
A letter of intent sets out the main terms on which a buyer proposes to acquire a business, before due diligence and the full purchase agreement. In the UK the equivalent is usually heads of terms.
Financing
Buyers usually combine their own equity with debt and some deferred payment to the seller:
- term loans from banks and credit unions
- business purchase loans from the Business Development Bank of Canada (BDC), which finances acquisitions of existing businesses with revenue and an established client base, and may add cash flow or mezzanine financing depending on the size and structure of the deal
- vendor finance (often called a vendor take-back), where the seller is paid part of the price over time
- earn-outs, where part of the price depends on future results
BDC expects the deal to be negotiated before you apply, with an agreed price and how it was set, a letter of intent, an expected closing date and the structure, so plan your timetable around it.
The Canada Small Business Financing Program helps small businesses with gross revenues of C$10 million or less get loans from participating lenders. The maximum is C$1.15 million, including up to C$1 million in term loans. It can finance the purchase of eligible assets of an existing business, but not a share purchase. Financing an acquisition explains how the layers fit together.
Seller finance is when the seller lends the buyer part of the purchase price, to be repaid with interest after completion. It is also called vendor finance or a seller note.
An earn-out is part of the purchase price paid only if the business meets agreed targets after the sale. It can bridge a gap between the seller's price and the buyer's view of the evidence.
Employees
Most employers follow the employment standards of their province or territory. A smaller group of federally regulated industries, such as banks, telecommunications and transport across provincial borders, follow the Canada Labour Code instead.
In a share purchase the employer does not change, so employment continues.
In an asset purchase, the buyer usually offers employment to the staff it wants. Provincial rules can then carry length of service across to the buyer. In Ontario, for example, when a buyer employs the seller's employee, their length of employment with the seller counts for entitlements such as vacation (annual leave) and termination notice, unless the buyer hires them more than 13 weeks after their last day with the seller or the day of the sale, whichever is earlier. In Quebec, the Civil Code provides that selling an enterprise does not end the contract of employment, which binds the new employer.
Accrued vacation pay, notice and severance can therefore follow the employees, so agree in the purchase agreement how they are reflected in the price. If the workforce is unionised, take specific advice before you plan any change.
Tax and regulatory touchpoints
- GST/HST. Where you buy all or substantially all (at least 90%) of the property needed to carry on the business, you and the seller can make a joint election with the CRA so that no GST/HST is charged on the sale. The election is not available if the seller is registered and you are not, and you file it by the due date of your first return in which the tax would otherwise have been payable. Provinces with their own sales tax have separate rules.
- Registrations. After an asset purchase you may need a new business number from the Canada Revenue Agency, as well as provincial registrations.
- Merger control. Under the Competition Act, parties must notify the Competition Bureau in advance when both thresholds are exceeded. For 2026, the business being acquired must have assets in Canada, or revenues from sales in, from or into Canada generated from those assets, above C$93 million, and the parties and their affiliates together must be above C$400 million.
- Foreign buyers. Under the Investment Canada Act, a non-Canadian that acquires control of a Canadian business must usually file a notification no later than 30 days after closing. Above monetary thresholds that are adjusted each year, it must instead apply for a net benefit review, and the investment cannot go ahead without the minister's approval. The government can also carry out a national security review of any foreign investment, whatever its value.
- Licences and property. Business licences and permits are issued by provinces and municipalities, and some are tied to the owner or the premises. If real property is included, ask about land transfer taxes and registration fees in that province.
Advisers you are likely to need
- A lawyer experienced in business acquisitions in the relevant province, for the letter of intent, purchase agreement and legal due diligence, including employment and real estate advice.
- A chartered professional accountant or tax adviser, for structure, price allocation, GST/HST and section 116.
- A business valuator where the price or allocation needs independent support.
- A bank, credit union or BDC lender, and possibly a finance broker.
- A business broker or M&A adviser, who usually acts for the seller.
- An insurance broker, for cover from closing and, on larger deals, representations and warranties insurance.
A business broker markets businesses for sale and manages the process on the seller's behalf. The broker is usually paid by the seller, mostly when a deal completes.
Before you sign
- Decide between a share purchase and an asset purchase with tax advice on both sides.
- Confirm where the seller is resident and whether a section 116 certificate is needed.
- Confirm whether the GST/HST election applies and who files it.
- List every lease, licence and key contract that needs consent or a new application.
- Check how service, vacation pay and notice carry over under the employment rules that apply.
- Check whether the Competition Act or the Investment Canada Act applies to your deal.
- Work through the diligence document request list and Due diligence: what to check and in what order.
If you want a listing's figures and public records checked before you instruct advisers, see what's in a dossier.