Buying a Business in Ontario: The 2026 Due Diligence Checklist
Buying an operating business in Ontario is one of the more complex commercial transactions a private buyer will ever undertake. The choice between an asset purchase and a share purchase, the depth of due diligence, the structure of the closing — each carries lasting tax, liability and operational consequences. This guide walks through the framework and the diligence checklist used in well-run deals.
The Letter of Intent and exclusivity
Most deals begin with a non-binding Letter of Intent (LOI). The LOI sets out price, structure (asset vs share), exclusivity period (typically 60–90 days), confidentiality and the scope of due diligence. It is largely non-binding except for the exclusivity, confidentiality and expense provisions.
Pay attention to the binding clauses. A poorly drafted exclusivity can lock the buyer out of competing opportunities for too long, or fail to lock out the seller from shopping the deal. Get a lawyer to redline the LOI even though most of it is non-binding — the binding pieces are the ones that bite.
The due-diligence checklist that catches real problems
Diligence covers six baskets: corporate (minute books, share register, regulatory licences), financial (audited statements, tax returns, working capital trends), commercial (top customer concentration, contract assignability, supply chain), employment (employee list, contracts, benefits, accrued vacation, WSIB), intellectual property (registered trademarks, copyrights, software ownership), and litigation (open files, threatened claims, regulatory investigations).
Material problems usually surface in employment or contracts. Employee misclassification, missing termination clauses and assignment-restrictive contracts with key customers can dramatically affect price or kill the deal.
The Purchase Agreement and where the leverage lives
The Purchase Agreement is the binding contract. Negotiation focuses on representations and warranties (the seller's promises about the business), the indemnification cap and basket, the survival period for claims, and any escrow or holdback held against post-closing claims.
A typical mid-market deal has indemnification capped at 10–25% of purchase price, a survival period of 18–24 months for general reps and longer for fundamental reps (title, capacity, tax), and a 5–10% holdback for working-capital and indemnification reconciliation.
Closing, transition and the first 90 days
Closing involves a coordinated set of deliveries — share certificates or bills of sale, resignations of directors, third-party consents, payoff letters for retired debt, and the wire transfer of the purchase price. Most closings happen at counsel's offices virtually.
The first 90 days post-closing are when the buyer realises what the business actually looks like. Hold the seller engaged through a transition services agreement. Communicate clearly to staff and customers. The deal is signed at closing, but the value is captured (or lost) in the months after.