The process of buying an existing business in Canada: asset purchase versus share purchase, independent valuation, due diligence, the purchase agreement, registry transfer, and CRA business number and GST/HST registration. Process only, no price guidance and no investment advice.
Applies in: across Canada
This guide covers the process of buying an existing business in Canada. It is not investment advice, and it gives no price guidance, no earnings claims, and no recommendation about any particular business. It does not cover buying real estate as an investment, which is a different asset with a different closing process, covered in the real-estate buying guide linked below. It does not cover starting a business from scratch, which is covered in the business registration guides linked below. What it covers is the sequence: decide what you are buying, value it independently, check it thoroughly, agree the purchase in writing, close, and transfer the registrations. A lawyer experienced in business acquisitions and an accountant should review the deal at the valuation and agreement stages. This guide states the process; it does not replace their advice on your deal.
The first decision is structural, and it should come before price talks get serious. An asset purchase buys the items the seller lists. A share purchase buys the company. The Business Development Bank of Canada describes the share side plainly: anyone buying shares takes a stake in the business, its assets, and its liabilities, whether or not they are recorded on the company books. That single sentence is why due diligence matters more in a share deal: the liabilities you inherit include the ones nobody wrote down.
Get the detailed list early. The vendor should supply a list of exactly what is up for sale, including land, buildings, equipment, inventory, the business name, the customer list, contracts with employees and suppliers, prepaid expenses, and intellectual property. Compare that list against what you actually need to operate. A deal that sells the equipment but not the customer list, the lease, or the supplier contracts may not be the business you thought you were buying. Where the business is a sole proprietorship or partnership rather than a corporation, there are no shares to buy, and the deal is necessarily an asset purchase into your own structure. Where the business is a corporation, both structures are possible, and the choice is a legal and tax decision to make with advisers, not a preference to state in an offer letter.
Determining a company's value is a complex process, part science and part art, and the Business Development Bank of Canada recommends hiring a chartered business valuator for an objective and realistic understanding of it. A valuator may use one or more methods depending on the available information and the type of business. The three most common method families are:
No multiple, rule of thumb, or price range is stated in this guide, because none was verified as applying to the business you are considering, and a multiple carried from another industry or another year is how buyers overpay. Give the valuator the same records you will use in due diligence: financial statements, tax filings, contracts, and the asset list. If the seller will not provide records a valuator needs, treat that as information about the deal, not as a paperwork delay.
Assess the assets separately from the business as a whole. A specialist's appraisal may be needed for assets such as real estate, major equipment, or specialized inventory, and a collection agency can help evaluate the true value of accounts receivable, especially for a company with many customer accounts. For equipment, have model numbers, purchase dates, working condition, maintenance schedules, and warranty details. For inventory, check age and condition, ask what is obsolete, and check best-before dates on perishable stock. For receivables, determine how likely the amounts owing are to be repaid, check their age and collectability, and ask whether adequate provision has been made for bad debts and whether any are disputed. An asset list without condition, age, and collectability is a list of hopes, not a valuation input.
Proper due diligence is the first thing to do when considering purchasing a company, according to the Business Development Bank of Canada: assess its financial statements, legal status, and assets, including inventory, equipment, and accounts receivable, using in-house and outside experts. Do it before the purchase agreement is signed, not after, and do it with people who have no stake in the sale closing. The seller's accountant is not your due diligence. Your accountant, your lawyer, and any technical expert the business needs are.
Financial. Financial statements and tax filings, reconciled to each other. Revenue by customer, to expose concentration. Accounts receivable and payable, aged. Inventory, counted rather than taken from the balance sheet where the amount is material. Loans, leases, and any security registered against the assets. Amounts owing to the Canada Revenue Agency or Revenu Québec, and whether filings are current.
Legal. Corporate status and good standing at the registry. Ownership of the business name, trademarks, and other intellectual property. Contracts with customers and suppliers, including change-of-control clauses that could end a contract on sale. The lease, including assignment terms and remaining term. Employment agreements and obligations to employees that transfer with the business. Pending or threatened lawsuits and regulatory proceedings. Licences and permits, and whether each transfers, must be re-applied for, or lapses on a change of owner.
Operational. How the business actually runs: suppliers, systems, key employees, and the seller's own role. If most sales come from a few customers, confirm those customers intend to continue doing business with the firm. If the seller is the business, in the sense that customers, suppliers, or technical knowledge sit with one person, the transition plan is the deal.
Liabilities. Loans or unpaid liabilities that may become your responsibility. Agreements that might lower the value of the assets or limit your freedom of action. Unrecorded liabilities in a share purchase, including income tax reassessments, lawsuits, and warranty claims. Price in the cost of the changes you intend to make after acquiring the company: the Business Development Bank of Canada warns that no matter how essential those changes may be, their cost may substantially reduce the return on the capital invested.
Set a deadline for the diligence in the offer, with a condition that lets you walk away or renegotiate if the records do not support the price. A seller who rushes diligence, limits access to records, or asks you to rely on summaries instead of source documents is giving you the answer to the diligence question. Walk away or re-price, in writing, through your advisers.
The purchase agreement is where the diligence findings become binding terms. It should list exactly what is being sold, using the detailed asset list from Step 1, so there is no argument after closing about whether an item was included. It should state the price and how it is paid, including any holdback, earn-out, or staged payment, and what happens to working capital, inventory, and receivables between signing and closing. It should carry the conditions that must be met before closing: financing if any, landlord consent to a lease assignment, customer or supplier consents where contracts require them, licence transfers, and completion of due diligence to the buyer's satisfaction. It should carry the seller's representations about the business: ownership of the assets, the accuracy of the financial statements provided, the absence of undisclosed liabilities, and the status of contracts, employees, and litigation, with remedies if a representation proves wrong. And it should carry the transition terms: how long the seller stays, what the seller teaches, and how customers and employees are introduced to the new owner.
Do not draft this agreement yourself from a template found online. The agreement is a legal document whose terms decide who bears the cost when a liability surfaces after closing, and the wrong clause in the wrong structure can cost more than the legal fees saved. Have a lawyer experienced in business acquisitions draft or review it, and have your accountant review the tax and working-capital clauses. This guide states the headings an agreement should contain; it does not draft them, and nothing in it is legal advice.
Closing is the point where money, documents, and control change hands. After closing, the registrations must follow, and the order matters: some filings have deadlines measured in days, and some accounts must exist before the business can trade, hire, or charge tax under the new owner.
Business number and tax accounts. A business number is a unique nine-digit number the CRA gives a business, identifying it when dealing with the CRA and other government programs. You need one if you own or operate a business in Canada and have to deal with the CRA for certain taxes or programs, including collecting GST/HST, having employees and needing a payroll deductions account, importing or exporting goods, incorporating federally or provincially, filing information returns, or filing corporate income tax. Each program account adds letters to the end of the business number: RT for GST/HST, RP for payroll, RC for corporation income tax, and RZ for information returns. If you already have a business number, do not register for a new one; use the existing number to register for the program accounts you need. Register online through Business Registration Online, or mail Form RC1 if online registration is not possible. Save or print the business number for your records; the CRA states it will not be sent to you. In Quebec, GST/HST is administered by Revenu Québec, and you must register and file GST/HST returns with Revenu Québec using their forms. Confirm whether the seller's program accounts close, transfer, or stay with the seller's entity, and never trade under the seller's business number.
GST/HST registration for the bought business. You must register for a GST/HST account if both situations apply: you are not a small supplier, and you make taxable sales, leases, or other supplies in Canada. A small supplier is a business whose revenue from worldwide taxable supplies was $30,000 or less in a single calendar quarter and over the last four consecutive calendar quarters. If you do not exceed $30,000 over four consecutive calendar quarters, you are a small supplier, you do not have to register, and you may choose to register voluntarily. If you exceed $30,000 in a single calendar quarter, you stop being a small supplier on the supply that took you over, you must charge GST/HST on that supply, and your effective date of registration is no later than the day of that supply. If you exceed $30,000 over the previous four or fewer consecutive quarters but not in a single quarter, you stop being a small supplier at the end of the month following the quarter in which you exceeded $30,000. In either case you must register within 29 days of your effective date of registration. An existing business with established sales will usually already exceed the threshold, which is why the GST/HST account question should be settled before the first sale under the new owner. If the deal involves a Section 167 election, settle the election position at closing, as described in the FAQ above.
Registry and corporate filings. If the business is a corporation, file the change notices the registry requires. Ontario's Corporations Information Act notice states that a corporation must file a Notice of Change for any change in the information previously filed within 15 days after the change takes place, including the head or registered office address, director information, and the five most senior officers. Alberta's change-notice page states that Alberta corporations must provide an authorized Corporate Registry service provider with address or director updates within 15 days of a change. Those are the Ontario and Alberta deadlines as published; each registry sets its own forms and deadlines, and federal corporations file with Corporations Canada, so confirm the forms, the deadline, and any extra-provincial registration updates for every jurisdiction where the business is registered before the deadline passes. Update the individuals with significant control information where the registry requires it, and keep the filed confirmations with the closing documents.
Licences, permits, and contracts. Transfer or re-apply for the municipal business licence and any sector licences and permits in the new owner's name, confirming with each issuing body whether the licence transfers or must be newly issued. Notify the landlord, lenders, insurers, suppliers, and major customers of the change of owner, and complete any lease assignment, insurance, banking, and supplier-account transfers the agreement requires. If the business has employees, settle the payroll deductions account, outstanding wages and vacation, and the employment records with the seller before the first payroll under the new owner runs.
The first weeks under new ownership decide whether customers and employees stay. Use the transition period in the agreement: work alongside the seller, meet the major customers and suppliers as the new owner, and learn the routines, systems, and unwritten rules before changing them. Tell employees plainly what changes and what does not, and confirm pay, hours, and roles in writing where the agreement or the employment contracts require it. A purchase agreement can also shape the handover: it can involve the buyer directly in management, or leave the purchaser as a silent partner while existing owners show the buyer how the business is run. Whatever the shape, put it in the agreement. A handshake understanding about transition help is worth nothing once the seller has been paid.
After the handover, judge the business on its own records. Reconcile the first month's sales, receivables, and payables against the diligence figures, count the inventory again, and confirm the tax accounts are filing and remitting under the new owner's numbers. If the records diverge from what the seller represented, raise it with your advisers promptly and in writing, while the agreement's remedies and holdbacks are still available.
Do not agree a price before an independent valuation and due diligence have tested it. An asking price is the seller's position, not a valuation. Do not skip outside experts to save fees: the accountant and lawyer review the records the seller chose to show you, and their job is to find what was not shown. Do not buy shares without understanding that unrecorded liabilities travel with the shares, including tax reassessments, lawsuits, and warranty claims. Do not assume the seller's business number, tax accounts, licences, or permits become yours: each has its own transfer, closure, or re-application step, and trading under the seller's numbers creates a record that is difficult to untangle. Do not assume a GST/HST election applies: the Section 167 conditions, including the 90 percent test and the registration pairing, must all be met, and the sale of individual assets is not a supply of part of a business. Do not guess a registry deadline: Ontario and Alberta publish 15 days for the changes described above, and every other registry sets its own. And do not treat this guide as advice on your deal. It states the process; the valuation, the agreement, and the tax position need advisers who have seen your records.
The two structures buy different things, and the choice shapes the rest of the deal. In an asset purchase you buy listed items: equipment, inventory, the business name, customer lists, contracts, and intellectual property, as the seller lists them. In a share purchase you buy the shares of the company, and with them a stake in the business, its assets, and its liabilities, whether or not they are recorded on the company books. The Business Development Bank of Canada warns share buyers in particular about unrecorded liabilities, including income tax reassessments, lawsuits, and warranty claims that were not recorded in the financial statements. There is no generally right answer: the structure depends on the business form, the liabilities found in due diligence, and tax advice on your specific situation. Settle the structure with a lawyer and an accountant before the purchase agreement is drafted, because the agreement, the tax filings, and the registry steps all follow from it.
No. This guide gives no price guidance, no multiple, and no rule of thumb. A defensible price comes from the records of the specific business. The Business Development Bank of Canada recommends hiring a chartered business valuator, who may use earnings-based methods (past results and forecasted cash flow or earnings), market-based methods (a multiple based on measures such as EBITDA or revenue, varying by industry, size, and market conditions), or asset-based methods (where value is asset-related rather than operations-related). Treat any asking price as the seller's opening position until an independent valuation and due diligence test it.
The Business Development Bank of Canada puts it first: assess the financial statements, the legal status, and the assets, including inventory, equipment, and accounts receivable, using in-house and outside experts. Work from a detailed list of exactly what the vendor is selling: land, buildings, equipment, inventory, the business name, the customer list, contracts with employees and suppliers, prepaid expenses, and intellectual property. Test each class of asset rather than accepting the list at face value: equipment condition and maintenance history, inventory age and obsolescence, and whether receivables are collectible and provided for. Look into liabilities: loans or unpaid amounts may become your responsibility, a previous lender may be positioned to seize assets for an unpaid loan, and agreements the company has signed may lower the value of the assets or limit your freedom of action. Confirm customer concentration too: if a few customers generate most sales, confirm they intend to keep doing business with the firm after the sale. Price in the cost of any changes you intend to make, because those costs can substantially reduce the return on the capital you invest.
It depends on the structure and on a joint election, and the election has strict conditions. Where the deal is a supply of a business or part of a business, the supplier and the recipient can jointly elect under subsection 167(1) of the Excise Tax Act, using Form GST44, so that GST/HST does not apply to the supply. The form states the conditions: the supplier must supply a business or part of it that was established or carried on by the supplier or acquired by the supplier; the recipient must acquire ownership, possession, or use of all or substantially all of the property necessary to carry on the business or part, where all or substantially all generally means 90 percent or more; and the registration pairing must be one the form allows: both parties registrants, both non-registrants, or a non-registrant supplier with a registrant recipient. If the supplier is a registrant and the recipient is not, the election cannot be made. The sale of individual assets of a business is not a supply of part of a business, so a piecemeal asset deal does not qualify, and exceptions apply for services to be rendered by the supplier, supplies by way of lease or licence, and real property sales where the recipient is not a registrant. Confirm the election position with a tax adviser before closing, because an election made where the conditions are not met leaves the tax payable.
Not automatically. A business number is the nine-digit number the Canada Revenue Agency gives a business to identify it in dealings with the CRA and other government programs, and the CRA states that if you already have an existing business number you will not need to register for a new one: use your existing number to register for the program accounts you need. What you need depends on the structure. In a share purchase, the corporation continues, and its business number and program accounts generally continue with it, with the directors, officers, and registered office updated at the registry. In an asset purchase into a new or existing entity of your own, that entity needs its own business number if it does not already have one, plus the program accounts it needs: GST/HST, shown as RT, payroll deductions, shown as RP, and corporation income tax, shown as RC. Register online through the CRA's Business Registration Online service, or by mailing Form RC1 if online registration is not possible. In Quebec, GST/HST is administered by Revenu Québec: register and file GST/HST returns with Revenu Québec using their forms. Confirm the seller's accounts are closed or transferred correctly rather than assuming the seller's numbers become yours.
File the registry change notices the registry sets, within its deadline, and do not guess the deadline. Ontario's Corporations Information Act notice states that after an Initial Return has been filed, a corporation must file a Notice of Change for any change in the information previously filed within 15 days after the change takes place, including changes to the head or registered office address, director information, and the five most senior officers. Alberta's change-notice page states that Alberta corporations must provide an authorized Corporate Registry service provider with address or director updates within 15 days of a change. Those two deadlines are examples, not a national rule: each province and territory, and Corporations Canada for federal corporations, sets its own forms and deadlines. Alongside the registry filings, settle the tax accounts: the GST/HST account position under the small-supplier rules, the payroll account if the business has employees, and the corporation income tax account. Transfer or re-apply for the municipal business licence and any sector licences in the new owner's name, confirming with each licensing body whether a licence transfers or must be newly issued.
Where a figure could not be verified on an official page, this guide states no figure: no valuation multiple, no price range, no earnings or return figure, no financing amount or rate, no tax rate, no capital gains figure, and no timeline for completing a purchase. Registry deadlines are stated only where the registry page states them: Ontario and Alberta at 15 days for the changes described above. Every other registry deadline, fee, and form must be confirmed on that registry's own page before filing. This guide gives process only and no investment, legal, or tax advice for any specific deal.