Buying a Business in BC: The Legal Steps from First Conversation to Closing

You have found a business you would like to buy, perhaps a café, a retail shop or a small trades company, and the seller is willing to talk. What happens between that first conversation and the day you get the keys?

This article lays out the legal steps in the order they usually happen, from the confidentiality agreement and letter of intent through due diligence and the purchase agreement to closing, and explains what to watch for at each stage.

The sequence matters more than any single document

Buying an existing business is less about one big contract than a series of steps, each of which sets up the next. A point missed early, such as a lease that cannot be assigned or a seller who will not give a non-compete, gets more expensive to fix with every step that follows.

One decision shapes everything else: whether you are buying the shares of the seller's company or its assets. We cover that choice in share purchase or asset purchase. If you will be buying through a company of your own, it is worth setting it up before the purchase agreement is signed so the contract is in the right name. This article walks through the order in which the work usually happens.

Step 1: The confidentiality agreement and the letter of intent

The confidentiality agreement

Before a seller hands over financial statements, customer information or the lease, they will usually ask you to sign a non-disclosure agreement. It is often presented as a formality, but read it. Check what information it covers, how long it lasts, whether it stops you from approaching the business's employees, customers or suppliers, and what you must do with the material if the deal does not go ahead.

The letter of intent, and which parts bind you

Once you have seen enough to make an offer, the terms are set out in a letter of intent (LOI), sometimes called a term sheet. A typical LOI covers:

• Price and structure, including shares or assets and how the price will be paid.
• What is included, such as equipment, inventory, the business name, goodwill and key contracts.
• Conditions, such as financing, satisfactory due diligence, and the landlord's consent.
• Timeline, including the due diligence period and a target closing date.

Most LOIs state that the business terms are not binding until a purchase agreement is signed. Certain clauses are usually meant to bind immediately, such as confidentiality, exclusivity (a period during which the seller will not negotiate with anyone else), who pays which costs, and governing law. Loose wording can make more of the letter binding than either side intended, or leave the parts you rely on unenforceable. The LOI is the right moment to involve a lawyer, because the deal's shape is set here.

Step 2: Due diligence

Due diligence is your chance to confirm that the business is what the seller says it is. Expect to review:

• Ownership and records. Who owns the business, and whether the seller's company is in good standing.
• Financial statements and tax filings, ideally with your accountant.
• The lease and major contracts, including any that need consent to assign or that change on a change of control.
• Employees. Names, start dates, pay, accrued vacation and any written contracts.
• Licences and permits, and whether they can transfer to you or must be applied for again.
• Searches for liens or security interests registered against the business's assets, and for litigation.
• PST. A purchaser should make sure the Province has issued a PST clearance certificate before buying a business. A purchaser who does not obtain one is liable for an amount equal to any PST the seller still owes.

Step 3: The purchase agreement

The purchase agreement turns the LOI into enforceable terms. Beyond price and closing date, the provisions that tend to matter most are the seller's representations and warranties about the business, indemnities if those prove untrue, any holdback of part of the price, the seller's non-competition and non-solicitation covenants, and the seller's help with transition. In an asset purchase it also allocates the price among the assets, which affects tax for both sides. The buyer and seller may also be able to elect, on CRA form GST44, not to have GST apply to the sale of the business or part of it, if the conditions are met.

Step 4: The landlord, the employees and the financing

These three tracks run alongside the purchase agreement and often decide the closing date.

The lease

If the premises are leased, the landlord's consent is usually needed to assign the lease to you in an asset purchase, and many leases also require consent to a change of control in a share purchase. Landlords may ask for financial information, a personal guarantee or a new lease. Start early. If you are buying the property as well as the business, the real estate is a separate transfer with its own steps.

The employees

Under section 97 of BC's Employment Standards Act, when all or part of a business is disposed of, the employment of its employees is deemed continuous and uninterrupted by the sale. Employees who stay keep their length of service, and the obligations that come with it pass to you. Decide before closing who is being kept on, and deal in the agreement with anyone who is not.

The financing

Lenders have their own conditions, timelines and security documents, and many require a personal guarantee. If the seller is financing part of the price, the repayment terms and the seller's security need to be documented with the same care as the purchase itself.

Step 5: Closing and the first weeks after

On closing, the lawyers exchange signed documents and funds move through their trust accounts. Registered liens the seller is paying out are discharged, and the keys, passwords and records change hands. PST applies to taxable assets you buy, such as business equipment, but not to inventory bought for resale, goodwill or real property. If the business must collect PST, it has to be registered before it makes any taxable sales.

After closing, expect post-closing adjustments, the eventual release of any holdback, and the practical work of moving accounts, licences and supplier relationships into your name. If you bought through a new company with partners, put a shareholders' agreement in place now.

Thinking of buying a business? Bring us in before you sign the letter of intent

Our business purchase and sale lawyers can review the letter of intent before you sign it, manage the legal side of due diligence, negotiate the purchase agreement and lease assignment, and handle the closing alongside your accountant and lender.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.