Toronto business and franchise lawyer Sukhi Hansra, JD, MBA, of Hansra Law sets out what buying a business in Canada actually involves, from who is allowed to buy one through to what you should check before you commit.
Finding a business for sale in Canada is the easy part. There are marketplaces full of them, and brokers who will send you listings every week.
The harder part is working out what happens after you find one you like, and that is where most first-time buyers are on their own. This page covers the process itself, who can buy, how these deals get paid for, and the things worth knowing before you make an offer.
This article is general business and legal information, not advice for your specific situation. Every acquisition turns on facts a general article cannot know. Speak with a lawyer about your own transaction before you sign anything.
Can you buy a business that already exists
Yes, and buying an existing business is the more common route in Canada by a wide margin. You are acquiring something with customers, staff, suppliers and a trading history, which is a fundamentally different proposition from starting from nothing. The trade is that you inherit the past along with the revenue.
That inheritance is the whole reason the process looks the way it does. Everything from due diligence to the structure of the purchase agreement exists to work out what came with the business and to make sure the right party carries it.
Our guide to finding a business to buy covers the search itself.
Can a non-resident buy a business in Canada
Yes. There is no general rule preventing a non-resident from owning a Canadian business, and buying one is not the same thing as immigrating. The two questions get tangled together constantly, and they have different answers from different areas of law.
What used to complicate this was director residency. Ontario formerly required that a set proportion of a corporation’s directors be Canadian residents, which shaped how non-resident buyers had to structure an acquisition. That requirement has been eliminated — our post on the elimination of Canadian residency requirements for Ontario directors sets out what changed and what it means in practice.
Federal corporations and other provinces have their own rules, so the precise answer depends on where the target is incorporated.
Two things get raised at this point that are worth putting in proportion. The first is the Investment Canada Act, which buyers hear about and assume will catch them. It will not. The review thresholds run into the billions of dollars in enterprise value, so no owner-operated purchase comes close. A notification filing can still be required, but that is administration rather than an obstacle.
The real issue is tax, and it is the one nobody mentions. A Canadian-controlled private corporation gets the small business deduction, which taxes the first $500,000 of active business income a year at a substantially reduced rate. To qualify, the corporation must not be controlled, directly or indirectly, by one or more non-resident persons. A non-resident buyer acquiring control therefore ends CCPC status, and only a CCPC can claim the small business deduction.
The effect is that the same business, earning the same profit, pays more tax the day after closing than it did the day before. That is a real change to what the business is worth to you, and it is rarely priced into an offer because it does not appear anywhere in the seller’s financial statements.
It is also planned around rather than simply accepted, and the structure that works depends on who is buying, from where, and what they intend to do with the profits. We advise on that alongside the accountants we refer clients to, and it is a conversation worth having before the price is agreed rather than after.
None of this is immigration advice. Whether buying a business supports any immigration outcome is a separate question for an immigration lawyer, and it is not what this page is about.
Can you get a business acquisition loan
Yes, acquisition lending exists in Canada and is a normal way these deals get funded. Banks lend against acquisitions, and the Business Development Bank of Canada lends specifically into this space. What a lender wants to see is that the business generates enough cash to service the debt after you have paid yourself.
Two features catch first-time buyers out. Lenders test your figures rather than accepting the seller’s, so a price built on the seller’s presentation of earnings may not survive underwriting. And the loan is usually conditional on the same diligence you are running, which means the financing timeline and the diligence timeline are linked.
That linkage is why financing belongs in your schedule from the start rather than after a price is agreed. BDC places the letter of intent before the investigation, noting that “usually, both parties will want to sign the LOI or similar document before launching a formal due diligence on the business” — so by the time your lender is reviewing anything, the headline terms are already committed to paper.
Our guide to financing a business purchase covers the options in more detail.
How do you buy a business if you have no money
Rarely with none at all, but with less than the purchase price, which is the usual situation. Most acquisitions combine several sources — some cash from the buyer, a lender for a portion, and often an amount left with the seller to be paid over time.
That last piece is seller financing, and it does a lot of work in smaller Canadian deals. The seller agrees to take part of the price later, usually with interest, which reduces what you need on closing day and signals that the seller believes the business will keep performing.
An arrangement with no buyer contribution at all is uncommon and usually unattractive to everyone involved. A lender wants to see you carrying risk. A seller taking a note wants the same. The realistic version of buying with limited funds is a smaller deal with a larger seller-financed component, not a deal with nothing down.
Is seller financing better than a mortgage
They are not really alternatives, because they secure different things and often sit in the same deal. A mortgage is secured against real property. Seller financing is the seller extending credit against the business itself, typically documented as a promissory note and registered against the business assets.
Seller financing is faster to arrange, more flexible on terms, and does not require you to satisfy a lender’s underwriting. It is also usually more expensive than bank debt and subordinate to it, meaning the seller gets paid after the bank does if things go wrong.
The practical answer for most buyers is that the two work together. Bank debt covers the bulk at the lower rate, seller financing bridges the gap and keeps the seller invested in a clean handover. Our guide to seller financing goes through the structure and the one legal ceiling that applies to the interest rate.
What to know before you buy a business
Know what you are actually buying, know what comes with it, and know what the price rests on. Those three sound obvious and they are where deals go wrong. The financial records tell you what the business earned; they do not tell you whether it keeps earning that under you.
Four things are worth settling before you get emotionally committed:
- Whether you are buying shares or assets. This determines what liabilities follow the business to you and how the price is allocated. Settle it before the letter of intent rather than after.
- Where the revenue actually comes from. A business whose customers arrived through the departing owner’s personal network is a different purchase from one with contracts and a repeatable marketing channel.
- What has to transfer, and who has to agree. Leases, key customer contracts and licences often need somebody else’s consent, and those third parties are not in a hurry.
- What the price assumes. A price built on normalised earnings is only as good as the normalisations, and those assumptions should be written down where both sides can see them.
The underlying point is worth stating plainly. It is far better to find out a deal is bad early than to find out after you have spent tens of thousands of dollars on lawyers and other professional advisors, and almost everything above is cheaper to check than to unwind.
Conclusion
Buying a business in Canada is well-trodden ground. Non-residents can buy, acquisition lending is available, and seller financing fills the gap that lending leaves. What separates a good purchase from an expensive one is knowing what you are buying before the terms are fixed. Access to money is rarely the binding constraint.
Although these are good starting points, every acquisition produces something the general pattern did not anticipate, and how it should be handled depends on facts a general article cannot know about your deal. A good next step is to speak with someone who has worked through it before, whether an Accountant or a Business Lawyer. Our guide to buying an existing business walks the process end to end.
If you have found a business you are serious about, schedule a complimentary discovery call with our firm, or reach the office at 416-580-0345.
