Is a business sale agreement required when selling a business in Ontario?

A seller in Ontario may ask whether the law forces them to sign a written sale agreement. The short answer is that the form depends on what is being sold and who the seller is. Some statutes allow a sale by word of mouth, others require writing for one piece of the deal, and the corporate statutes add an approval step. None of that makes an unwritten deal a good idea, but it explains what the law itself requires.

The general rule on form

Section 4 of Ontario’s Sale of Goods Act says that, subject to that Act and any statute in that behalf, a contract of sale may be made in writing, with or without seal, or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties, but nothing in that section affects the law relating to corporations. That Act deals with goods, such as inventory and equipment. A business sale can involve more than goods, so it does not settle the whole question.

Where writing is required

If the business operates from leased premises, section 2 of the Statute of Frauds says that, subject to section 9 of the Conveyancing and Law of Property Act, no lease or interest of freehold or term of years may be assigned, granted or surrendered unless it is by deed or note in writing signed by the party assigning it, or the party’s agent lawfully authorized in writing, or by act or operation of law. So, subject to that exception, assigning the lease needs a signed document. See lease assignment.

Approval when a corporation sells

Under section 184(3) of the Ontario Business Corporations Act, a sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business requires shareholder approval in accordance with the following subsections. Section 189(3) of the federal Canada Business Corporations Act is worded the same way for federally incorporated companies. If you are selling shares instead of assets, a different set of rules applies.

What to ask your lawyer

Ask which parts of your deal must be in writing, whether shareholder approval is needed and how it is recorded, and how the terms will be documented for the buyer. Related contracts are covered under vendor contracts, and the wider process in selling a business in Ontario.