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How to Sell Your Business A Legal Roadmap for Owners

OntarioCanada

Selling your business is one of the most significant legal and financial events of your professional life. The decisions made in the months before and during the sale have lasting consequences.

Prepare Early 12 to 24 Months in Advance

The biggest mistake sellers make is starting the sale process before the business is ready. Problems discovered by buyers during due diligence become leverage for price reductions. Preparing early gives you time to fix issues on your own terms.

Pre-sale preparation checklist:

  • Update the corporate minute book
  • Ensure financial statements are current, accurate, and ideally reviewed or audited
  • Resolve any outstanding litigation, CRA matters, or regulatory issues
  • Confirm key contracts are in writing, current, and properly held by the corporation
  • Verify all IP is held in the corporation (not personally by founders)
  • Consult a tax advisor on the optimal structure particularly QSBC eligibility for the Lifetime Capital Gains Exemption

Structure: Share Sale vs. Asset Sale

As a seller, you will almost always prefer a share sale proceeds are capital gains and may be sheltered by the Lifetime Capital Gains Exemption if the corporation qualifies as a QSBC. Confirm QSBC status with your accountant well before the sale, as there are specific tests that must be met.

Managing the LOI

Negotiate the exclusivity period carefully keep it as short as possible (30–45 days rather than 90). Confirm whether the price is firm or subject to working capital adjustments. Understand what post-closing transition obligations you are agreeing to.

Due Diligence: Disclose Everything Material

Organize documents before the buyer asks. Create a data room with corporate, financial, employment, IP, and contract documents logically arranged. Disclose everything material proactively information withheld and later discovered gives buyers post-closing indemnity claims at a time when your leverage is gone.

Representations, Warranties, and Indemnities

You will make legally binding representations about the state of your business. Key seller protections: knowledge qualifiers ("to the seller's knowledge") limiting reps to what you actually knew; a disclosure schedule carving out everything disclosed; a basket establishing a minimum threshold before claims can be made; a cap limiting your maximum indemnity exposure (typically 10–20% of purchase price); and a survival period limiting how long after closing claims can be brought.

Bottom line: Assemble your advisory team early a corporate lawyer, a tax accountant, and potentially an M&A advisor. The cost of good advisors in a business sale is trivial compared to the cost of a poorly structured deal or an avoidable tax liability that could have been eliminated with advance planning.

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