Buying and Selling of a Business – An Overview

  • November 08, 2022
  • Ola Oshodi (ACIS)

The purchase and sale of a business mirrors the laws of contract in terms of its elements, however, there are more aspects to be considered. The purpose of this article is to give the reader a general overview of the process involved in buying and selling a business, and it is in no way exhaustive of the intricacies involved in buying and selling a business. This general overview stems from recently attending the CPD program on buying and selling a business organized by the business law section of the Ontario Bar Association and my personal experience overseeing private purchase and sale of business transactions.


Regardless of whether you are the vendor or purchaser’s counsel, prior to the commencement of the transaction, it is a practical to have a transaction Checklist to guide and direct the entire process of the transaction. Transaction checklist precedents can be found in various business law precedent software. The checklist guides you on the steps involved in the transaction and as time is generally of the essence, you may want to include timelines into the checklists.

Depending on the party you represent, upon the receipt of the letter of intention to sell a business, you should undertake a thorough review of the letter of intent because the letter of intent acts as a foundation upon which negotiations and the transaction agreements will be built. Some purchasers may decline conducting due diligence on an intended business purchase, the risk of not conducting due diligence cannot be underestimated and you should protect your practice and Lawpro insurance through documentary evidence.

There are several types of due diligence that will be required to be undertaken in a purchase or sale transaction including but not limited to financial and legal due diligence. Due diligence examines the financial health and any legal or potential legal exposure of the proposed business that could be detrimental to the purchaser’s financial standing or reputation. You want to assist your client to minimize their liability exposure to the barest minimum. Due diligence may be conducted prior to receiving a letter of intent, after receiving a letter of intent and at any other time you believe there is a need to further probe any initial diligence findings before structuring the deal. Some business transactions have a definite deal structure and other business transactions may take a hint from the letter of intent or the due diligence report to define or redefine the appropriate deal structure for the proposed business transaction.

The common deal structure used in business transactions are Asset Purchase and Share Purchase. The determination of the deal structure is dependent on the business itself and no two business transactions are ever the same. Where a purchaser intends to purchase a business with only goodwill and such business has limited or no assets, a share purchase may be ideal depending on other factors; and where a purchaser intend to purchase a business with goodwill and substantial assets, an asset purchase or share purchase may be ideal depending on a range of factors. Assuming without conceding that the purchaser intends to go with an asset purchase deal structure, one of the benefits of this deal structure is that the purchaser may not have to purchase all the assets of the proposed business transaction thereby reducing the purchaser’s financial exposure. At every stage through the transaction process, there is negotiation constantly taking place between the vendor and the purchaser or between their counsels. These negotiations set the stage for the purchase itself.