Can a purchase agreement require the buyer’s own board approval first?

A purchase agreement can be drafted so that a closing condition makes the buyer’s obligation depend on its own board approving the deal. Whether that is a sensible term depends on who actually decides for the buyer and how firm the condition is. A buyer who is an individual has no board, while a corporate buyer is governed by the statute it was incorporated under. This answer uses the federal and Ontario Acts as examples; other provinces have their own.

Who decides for a corporate buyer

The Canada Business Corporations Act says that, subject to any unanimous shareholder agreement, the directors shall manage, or supervise the management of, the business and affairs of a corporation (s.102(1)). Ontario’s Business Corporations Act says the same in s.115(1). An otherwise lawful written agreement among all the shareholders that restricts the directors’ powers, in whole or in part, is valid (CBCA s.146(1)), so the real approver may be the shareholders. Read the buyer’s articles and any such agreement before deciding whose approval matters.

The seller has an approval of its own

The other side of the table can face an approval too. Under CBCA s.189(3) and OBCA s.184(3), a sale, lease or exchange of all or substantially all of a corporation’s property, other than in the ordinary course of business, requires the approval of the shareholders, given by special resolution (CBCA s.189(8), OBCA s.184(7)). A seller selling that way is not deciding by board vote alone. Ask which approvals each side still needs, and put them all in the agreement.

Writing the condition

A board-approval condition gives the buyer a way to walk, so a seller should press for specifics. Ask for the approval to be obtained before signing where possible. If it is a condition, name the body that must approve, set a deadline, say what happens to any deposit if approval is refused, and say whether the buyer may waive it. A buyer using a lender should also ask how the approval date lines up with the lender’s process; BDC says you and the seller must agree on a purchase price before applying for its purchase or transfer loan.