Due Diligence When Buying an Ontario Business

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What due diligence is for

When you buy a business, the seller knows far more about it than you do. Due diligence narrows that gap. It is the period, usually after a letter of intent and before the final purchase agreement is signed or closes, when the buyer and its advisors review the company’s legal, financial and operational position. Our buying or selling a business page shows where it fits in the deal.

The aim is not to find a perfect business. It is to find out what you are actually buying, so the price reflects it, the seller’s promises in the agreement cover the risks you cannot verify, and anything that can be fixed is fixed before you pay. How much you review depends partly on the structure. In a share purchase you take over the company’s whole history, so the review is broader; in an asset purchase you mainly need to confirm that the seller owns what it is selling and can transfer it. We compare the two in asset sale or share sale.

How due diligence usually runs, step by step

Sign a confidentiality agreement. The seller will share private records, so a non-disclosure agreement usually comes first. What it should cover is explained in what should an NDA cover.
Send a request list. The buyer’s lawyer and accountant send a list of documents they need, and the seller gathers them, often in a shared data room.
Run the public searches. Anyone can search the Ontario Business Registry at no charge for basic information, and order search products. Ontario’s registry page lists a profile report at $8, document copies at $3 and a certificate of status at $26 when ordered directly from the ministry.
Review the corporate records. The minute book and registers show who owns the shares, who the directors are and what was approved.
Review contracts, people and property. Leases, key customer and supplier contracts, employees and any real estate.
Report and decide. The advisors report what they found. The buyer then negotiates price, adds specific promises or indemnities, requires fixes before closing, or walks away.

A due diligence checklist for an Ontario corporation
Area	What to ask for or search	Where the rule or source is
Existence and status	Certificate of status and profile report from the Ontario Business Registry	Ontario Business Registry search products
Public filings	Initial return, notices of change and annual returns on the public record	Corporations Information Act ss. 2, 3.1, 4
Articles and by-laws	Articles, amendments, by-laws and any unanimous shareholder agreement	OBCA s. 140(1)(a)
Decisions	Minutes and resolutions of shareholders and directors	OBCA s. 140(1)(b), (2)(b)
Who owns the shares	Securities register and register of transfers, share certificates	OBCA s. 141
Who is in charge	Register of directors, with start and end dates	OBCA s. 140(1)(c)
Beneficial owners	Register of individuals with significant control	OBCA s. 140.2
Real estate	Register of ownership interests in land in Ontario, with deeds	OBCA s. 140.1
Trading names	Business name registrations	Business Names Act s. 2
Employees	List, start dates, contracts, any non-compete terms	Employment Standards Act, 2000, ss. 9, 67.2
Accounting records	Financial statements and records, with your accountant	OBCA s. 140(2)

What the corporate records should show

Section 140(1) of the Business Corporations Act (the OBCA) requires every corporation to keep its articles and by-laws, a copy of any unanimous shareholder agreement known to the directors, minutes and resolutions of shareholders, a register of directors, a securities register, a register of its ownership interests in land and a register of individuals with significant control. Section 140(2) adds directors’ minutes and resolutions and adequate accounting records, which generally must be kept for six years after the end of the fiscal period they relate to. The full contents of a minute book are set out in what goes in an Ontario corporation’s minute book.

In a share purchase, the securities register and register of transfers under section 141 are the starting point: they should trace every share from issue to the seller. Each issue of shares should be supported by a directors’ resolution, because section 23(3) says a share cannot be issued until it is fully paid. The register of individuals with significant control, required by section 140.2, should match who actually owns and controls the company. We explain that register in what is the register of individuals with significant control.

Shareholders and creditors can generally examine most of these records at no charge during business hours under section 145, but the register of individuals with significant control is excluded from that right. A buyer who is not yet a shareholder sees them because the seller agrees to provide them.

What changes the answer

Gaps in the records

It is common to find missing annual resolutions, shares that were promised but never issued, or a transfer that was never recorded. These can usually be fixed, but the seller should fix them before closing, not after. How that is done is covered in how to fix years of missing corporate records.

A unanimous shareholder agreement

If the company has one, a buyer of shares is deemed to be a party to it under section 108(8) of the OBCA. Section 108(9) gives a buyer for value without notice of it a right to object within 60 days of receiving a full copy, but it is far better to read it before signing. We explain these agreements in what is a unanimous shareholder agreement.

Employees and restrictive covenants

In an asset purchase, section 9 of the Employment Standards Act, 2000 treats the employment of anyone the buyer hires from the seller as continuous for the purposes of that Act. Non-compete clauses with employees entered into on or after October 25, 2021 are generally void under section 67.2, Ontario’s guidance says older ones are not prohibited by the Act, and either way a buyer should not assume they protect the business. The rules are in are non-compete clauses enforceable in Ontario.

Contracts and leases

In a share purchase the contracts stay with the company, but many leases and supply agreements say what happens if control of the company changes, and some require the other party’s consent. In an asset purchase each contract has to be assigned, and the same consent question arises for every one. Reading the key contracts early shows which consents need to be in hand before closing, and which relationships the price really depends on.

A federal corporation

If the company is incorporated under the Canada Business Corporations Act, its status and filings are with Corporations Canada, and section 263.1 of that Act lets the Director provide a certificate that a corporation exists or has sent the documents it must send. Its significant control information is also filed federally each year, so the review covers both its federal and its Ontario filings.

Directors’ exposure

Section 131 of the OBCA makes directors personally liable to employees for up to six months’ unpaid wages and twelve months’ vacation pay. A buyer taking over as director in a share purchase should know whether wages and vacation pay are current.

Tax and finances

Financial statements, tax filings and any tax exposure are reviewed by the buyer’s accountant. The Canada Revenue Agency says every resident corporation must file a T2 return every tax year, so missing returns are worth asking about. This page gives no tax advice.

Example

For example, imagine Grace, who is buying all the shares of a Vaughan distribution company from its two founders. After signing an NDA and a letter of intent, her lawyer orders a certificate of status for $26 and a profile report for $8 from the Ontario Business Registry. The company is active, but its last two annual returns are missing.

The minute book shows the founders’ original shares, but a 2022 issue of shares to a third person was never approved by resolution or entered in the securities register, and there is no register of individuals with significant control. Grace’s purchase agreement makes the closing conditional on the sellers filing the missing returns, documenting the 2022 issue properly or buying out the third person, and creating the significant control register. It also adds a specific indemnity for any unpaid wages before closing, given her exposure under section 131 once she becomes a director.

Common mistakes

Signing a binding agreement before the review. Make the deal conditional on satisfactory due diligence.
Relying on what the seller says the records show. Ask for the minute book itself and trace the shares.
Skipping the public searches. A certificate of status costs $26 and confirms the company is active.
Ignoring the shareholders’ agreement. A unanimous one binds a buyer of shares.
Assuming employee non-competes protect the business. Many are void under the Employment Standards Act.
Leaving fixes until after closing. Once you have paid, the seller has less reason to help.

What to do this week

Sign an NDA with the seller before you receive any records.
Ask for the full minute book, including all registers and any shareholders’ agreement.
Order a certificate of status and profile report from the Ontario Business Registry.
Ask for every lease and key contract, and check whether each needs consent to change hands.
Ask for an employee list with start dates and contracts.
Bring in your accountant for the financial and tax review.
Make sure the letter of intent keeps due diligence as a condition. Before you sign, a first consultation takes 30 minutes, by video or in person, and you can request one here.

Frequently asked questions

How long does due diligence take?

It depends on the size of the business and how organized its records are. A company with a complete minute book and clean contracts is reviewed much faster than one whose records have to be rebuilt.

Can I search a company myself?

Yes. Ontario’s registry says anyone can search it at no charge for basic information, and order products such as a profile report or certificate of status for a fee.

Does due diligence matter in an asset purchase?

Yes, though the focus shifts to whether the seller owns the assets, can transfer them, and has the consents needed for contracts and leases.

What if we find a problem?

Most problems are dealt with in the deal: a price change, a specific promise or indemnity from the seller, a holdback, a condition that it be fixed before closing, or a decision not to proceed.

Who pays for due diligence?

Usually each side pays its own advisors. The government search fees are small; the larger cost is professional time.

What records can the seller refuse to show?

Before closing, the seller decides what to share, subject to the letter of intent. A seller who refuses to show the minute book or key contracts is giving the buyer important information in itself.

Sources

This page is general information about Ontario law, not legal advice for your situation. It reflects the law as of October 26, 2026.

What happens in due diligence when you buy a business in Ontario?