What can I do if revenue numbers were inflated in a business purchase?

Finding out after closing that revenue was overstated is stressful, and the first steps are practical rather than dramatic. What you can do depends on what the agreement says, what the seller knew, and how much time has passed. This page sets out where to look first. It does not say whether you have a claim or how much it is worth. A lawyer must answer that from the documents.

Read what the seller promised

Find the representations about the financial statements and the indemnity clause. Note how a claim must be notified, any cap, any survival period, and whether part of the price was held back. Confirm whether the numbers you relied on were in the agreement or only in marketing material and emails. Keep both. The guide to representations, warranties and indemnities explains how these clauses work together.

Watch the time limits

Ontario’s Limitations Act, 2002 bars a proceeding after the second anniversary of the day the claim was discovered (s.4). A claim is discovered on the earlier of the day the person first knew the matters set out in s.5(1)(a) and the day a reasonable person first ought to have known of them. Section 15(2) adds a 15th-anniversary outer limit, which under s.15(4) does not run while, among other things, the person against whom the claim is made wilfully conceals the loss or wilfully misleads the claimant. Under s.22(5), a business agreement may vary or exclude the Act’s limitation periods other than the s.15 one, which it may vary only within the limits stated there. Alberta’s Limitations Act has 2 years from when the claimant first knew or ought to have known the matters it lists, or 10 years after the claim arose, whichever expires first (s.3(1), subject to its exceptions); s.4 suspends the 10-year period while the defendant fraudulently conceals the injury. British Columbia’s Limitation Act has, subject to the Act, 2 years from discovery (s.6) and 15 years from the act or omission (s.21). Other provinces differ. See also changing the limitation period.

If the seller may not be able to pay

If the seller later goes bankrupt, Bankruptcy and Insolvency Act s.178(1)(e) says an order of discharge does not release a debt resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than one arising from an equity claim. Whether a given claim qualifies is for a court.

• Keep the financial statements, tax filings, bank records and sales reports you were given.
• Ask an accountant to compare them with the real records, and record what differs.
• Ask a lawyer how and when to give notice under the agreement.