How does a share purchase agreement work when buying a business in Ontario?

This page covers Ontario only, and a corporation governed by the Ontario Business Corporations Act. For what the agreement is, see what a share purchase agreement is. The Ontario details to check are the section that hands the transfer to a second Act and the registers the corporation must keep, which a buyer can ask to see.

Section 53 and the second Act

Section 53 of the Business Corporations Act says that, except as otherwise provided in that Act, the transfer or transmission of a security is governed by the Securities Transfer Act, 2006. Under section 62 of that Act, a restriction on transfer imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of it unless the security is certificated and the restriction is noted conspicuously on the certificate, or it is uncertificated and the registered owner has been given notice of the restriction by a person required to give that notice to make the restriction effective. Under section 85(1), unless otherwise agreed, the transferor must on demand supply the purchaser with proof of authority to transfer or any other requisite necessary to obtain registration; under subsection (2), if the transfer is not for value, the transferor need not comply unless the purchaser pays the necessary expenses.

The securities register and the register of transfers

Section 141(1) requires the corporation to maintain, at its registered office or another place in Ontario the directors designate, a securities register recording the securities it has issued in registered form. For shareholders, section 141(1)(a)(i) lists those who are or have been registered as shareholders within six years, with addresses and the number and class of shares held. Section 141(2) adds a register of transfers, setting out every transfer of registered securities and its date and particulars. Ask for both. Ask your lawyer which notices to file after closing.

The register of individuals with significant control

Section 140.2 requires the corporation to prepare and maintain a register of individuals with significant control, but subsection (8) says the section does not apply to some corporations, including an offering corporation, one whose shares are listed on a designated stock exchange, and a wholly-owned subsidiary of either. It shows each individual’s name, date of birth and latest known address, and a description of how they hold that control, including, as applicable, their interests and rights in respect of the corporation’s shares. Subsection (3) requires the corporation, at least once in each financial year, to take reasonable steps to ensure that it has identified all individuals with significant control and that the information in the register is accurate, complete and up to date. Section 56(8) also requires a conspicuous note on certificates where the articles restrict the issue, transfer or ownership of shares for a purpose set out in clause 42(2)(c) or (d), subject to that subsection’s conditions. BDC describes the representations and warranties section as where the vendor formally describes the condition of the business and makes disclosures about any issues or problems of which it is aware.