A practical guide for business owners and prospective purchasers from Ahlawat Law Professional Corporation Buying an existing business can be an efficient way to step into an operating enterprise with customers, employees, inventory, equipment, premises, intellectual property, and revenue already in place. It can also expose a buyer to problems that are not obvious at first glance, including unpaid taxes, hidden security interests, weak contracts, employee claims, regulatory issues, or a lease that cannot be assigned on acceptable terms. That is why the closing stage matters so much. A commercial closing is not simply the moment when the buyer pays the purchase price and receives the keys. It is the point at which the parties confirm exactly what is being bought, whether required approvals have been obtained, whether risks have been allocated properly, and whether the documents on which the business depends can actually be transferred or preserved. For Ontario buyers, a careful closing process is often the difference between acquiring a functioning business at the expected value and inheriting avoidable liabilities. Why the Closing Stage Matters By the time a deal reaches closing, the headline business terms may already feel settled. In practice, however, many of the most important issues are resolved only in the final stretch: searches are reviewed, closing conditions are checked, financing is finalized, security interests are discharged, assignments are signed, working capital and other adjustments are confirmed, and the purchase agreement is tested against the facts uncovered in due diligence. If this stage is rushed, the buyer may discover after closing that a key contract was terminable on short notice, a landlord consent was never secured, a licence could not be transferred, or a lender still has a registration against core assets. Those are problems that can be expensive to fix once the money has changed hands. A disciplined closing process is therefore a risk-management exercise, not administrative cleanup. Asset Purchase or Share Purchase? One of the earliest and most important decisions is whether the transaction will be structured as an asset purchase or a share purchase. In an asset purchase, the buyer acquires selected assets of the business, such as inventory, equipment, goodwill, trade names, receivables, intellectual property, leasehold interests, and contracts that can be assigned. Buyers often prefer this structure because they can identify which liabilities they are willing to assume and leave the seller’s corporation behind, subject to important exceptions and practical risks. In a share purchase, the buyer acquires the shares of the operating corporation itself. That can make continuity easier because the corporation remains the contracting party, the employer, and the permit holder, but it also means the corporation keeps its history. If the target has undisclosed tax exposure, litigation risk, employment liabilities, regulatory problems, or warranty obligations, those issues do not disappear simply because ownership changes. The asset-versus-share decision shapes the entire transaction, including due diligence, consents, tax analysis, financing, and closing documents, so it should be addressed at the outset. Start with a Clear Letter of Intent A carefully drafted letter of intent, term sheet, or conditional offer can save time and reduce misunderstandings. It should usually address the proposed purchase price, transaction structure, deposit, payment terms, vendor financing if any, working-capital adjustments, due-diligence and financing conditions, required third-party approvals, the proposed closing date, and any transition assistance expected after closing. It is also common to address confidentiality and exclusivity. Even where the commercial terms are intended to be non-binding, some provisions, such as confidentiality, access, expense allocation, exclusivity, or governing law, may be legally binding. Buyers should not treat the letter of intent as a casual placeholder. Due Diligence Before Closing Financial Records and Quality of Earnings Due diligence is the buyer’s opportunity to verify the seller’s statements and determine whether the business performs and complies as represented. On the financial side, buyers commonly review at least three years of financial statements, tax returns, notices of assessment or reassessment, GST/HST filings, payroll remittance records, bank and merchant statements, accounts receivable and payable aging, inventory reports, capital expenditure records, and current year-to-date results. The goal is not only to confirm revenue, but to understand the quality of earnings. Owner compensation, personal expenses run through the business, related-party transactions, non-recurring items, deferred maintenance, unusual accounting entries, family members on payroll, and expected post-closing cost increases can all affect value. Tax and Remittance Review Tax diligence is especially important in a share purchase because the corporation retains its tax history. Buyers should understand the status of corporate income tax, GST/HST, payroll source deductions, EI and CPP remittances, worker classification issues, audits, objections, outstanding assessments, interest, and penalties. Unremitted source deductions and GST/HST can create serious exposure. In an asset deal, buyers should also pay attention to the allocation of the purchase price among asset classes, GST/HST treatment, available tax elections, possible recapture issues, and whether land transfer tax may apply if real property is included. Contracts and Leases Contracts and leases deserve focused review because they often determine whether the business can continue operating as expected on day one. Material agreements may include customer contracts, supplier and distribution arrangements, equipment leases, financing documents, franchise agreements, software licences, service contracts, advertising agreements, intellectual property licences, and government or institutional contracts. Buyers should look closely at assignment restrictions, change-of-control clauses, automatic renewals, termination rights, minimum purchase obligations, exclusivity provisions, pricing adjustments, personal guarantees, and indemnity obligations. If the business depends on its premises, the commercial lease may be one of the most important assets. Remaining term, renewal rights, base rent and additional rent, common area charges, maintenance obligations, permitted use, relocation or demolition rights, assignment provisions, guarantees, defaults, and arrears should all be reviewed carefully. In many cases, landlord consent should be an express condition of closing. Employees, Licences, Regulatory Compliance, and Intellectual Property Employee, licensing, regulatory, and intellectual-property issues can also determine whether a transaction works in practice. Buyers should request an employee schedule showing start dates, positions, compensation, bonuses, vacation entitlement and accruals, benefits, written agreements, leave status, discipline