What to Look for Before Signing a Business Purchase Agreement in Ontario

By the time a business purchase agreement is in front of you, most of the deal feels done.

The price has been discussed. The structure has been agreed. There is a general understanding between the parties.

This is where many buyers make a mistake.

They assume the agreement simply reflects what has already been negotiated.

In reality, the agreement is where the deal is actually defined.

It determines what you are buying, what risks you are taking on, and what protection you have after closing.

The Agreement Is Not Just a Formality

It is common to see buyers focus on the headline terms and skim the rest.

In practice, the detail is where most issues arise.

Two agreements can have the same purchase price and still allocate risk very differently.

The difference is usually found in the clauses that are not immediately obvious.

What You Are Actually Buying

The agreement should clearly define what is being transferred.

This is not always as straightforward as it sounds.

It should address:

• which assets are included

• whether goodwill is part of the purchase

• which contracts are being assigned

• whether any assets are excluded

We regularly see situations where buyers assume something is included, only to find that it is not clearly captured in the agreement.

How the Purchase Price Is Structured

The price itself is only one part of the equation.

The agreement should clearly set out:

• how and when payments are made

• whether there are adjustments at closing

• whether any portion is held back

• whether there are earn-outs tied to performance

Disputes often arise not over the price, but over how it is calculated and paid.

Representations and Warranties

These are one of the most important sections of the agreement.

They are statements made by the seller about the business.

They typically cover:

• financial condition

• contracts and obligations

• compliance with laws

• absence of undisclosed liabilities

If these are too limited, the buyer may have little recourse if issues are discovered after closing.

Indemnities and Protection After Closing

Closely tied to representations are indemnity provisions.

These determine:

• when the seller is responsible for losses

• what types of claims are covered

• how long the protection lasts

Without properly structured indemnities, the buyer may have limited ability to recover losses.

What Happens Before Closing

Many transactions involve a gap between signing and closing.

During this period, the agreement should address:

• how the business is operated

• restrictions on major decisions

• conditions that must be satisfied before closing

Without this, the business could change in ways that affect its value before the deal is completed.

Key Contracts and Dependencies

The value of a business is often tied to its contracts.

The agreement should address:

• which contracts are being transferred

• whether third-party consent is required

• what happens if a key contract cannot be assigned

If critical relationships do not carry over, the value of the business can be affected.

Employees and Transition

Operational continuity is often overlooked.

The agreement should clarify:

• whether employees will be retained

• how employment obligations are handled

• whether the seller will assist with transition

This becomes important immediately after closing.

Non-Competition and Non-Solicitation

Buyers typically expect that the seller will not compete after the sale.

This is addressed through:

• non-competition provisions

• non-solicitation clauses

These must be properly drafted to be enforceable, while still providing meaningful protection.

Limits on Liability

Most agreements include limitations on the seller’s liability.

These may include:

• caps on damages

• time limits for claims

• thresholds for bringing claims

These provisions significantly affect the buyer’s ability to recover losses.

Where Buyers Get Caught Off Guard

We frequently see issues where:

• assumptions are not reflected in the agreement

• key risks are not properly allocated

• standard templates are used without adjustment

• important details are left vague

These issues usually become apparent after closing, when options are limited.

Book a Consultation

By the time you are reviewing a business purchase agreement, the deal may feel complete.

It is not.

This is the stage where risk is allocated and your protection is defined.

If you are reviewing an agreement or preparing to sign, it is worth taking a closer look before moving forward. A properly structured agreement can make a significant difference after closing, and you can Book a Consultation to walk through the agreement and identify any issues before you commit.