How do I sell my business to a friend or partner?

A sale to a friend or a business partner can feel informal, and that is where problems start. The deal still needs a price, written terms and updated registrations, and the tax rules still ask whether you and the buyer deal at arm’s length. A friend is not automatically related to you. A partner, by contrast, may already share ownership, which changes the paperwork.

Friends are a question of fact

The Income Tax Act deems related persons not to deal at arm’s length, but for unrelated people, friends included, it says the answer is a question of fact. That matters because section 69 applies when you dispose of something to a person you do not deal with at arm’s length for less than fair market value: you are then deemed, except as the Act otherwise provides, to have received fair market value. If the CRA concluded that a friendly discount meant you were not at arm’s length, you would be treated as having received the full value, so record how the price was set.

When the buyer is your partner

What the Canada Revenue Agency needs depends on the structure. In a partnership, call the CRA when a partner leaves or one is added; the effect depends on your partnership agreement, and in some cases the partnership is treated as a new legal entity needing a new business number and program accounts. In a corporation, update the corporate registry first, then send supporting documents to the CRA. Buying out a business partner shows the same deal from the buyer’s side.

Write the deal down

BDC says you need a lawyer familiar with business transitions to negotiate the purchase agreement. With a friend, write down the price and how you reached it, the payment schedule, what happens if payments stop, and what you remain responsible for afterwards, as what a seller remains responsible for after selling explains.