What closing conditions are common in a business purchase?

A closing condition is something the purchase agreement requires to happen before a party must close. The list is whatever the two sides negotiate, so there is no standard set. Some conditions exist because a government body runs a process that touches the sale. A buyer does not control how long those take, so they are worth checking early. The examples below come from the bodies that publish them, and each province runs its own version.

Clearances from tax and workers’ compensation bodies

Some provinces let a buyer ask for proof that the seller’s account is in good standing. The Saskatchewan Workers’ Compensation Board says a purchaser needs a section 156 clearance certificate to be released from legal responsibility for the previous owner’s account. British Columbia’s PST guidance says a purchaser should ensure they hold a clearance certificate before buying a business, and that a purchaser who does not obtain one is liable for an amount equal to any outstanding amount the collector (the PST-registered seller) owes. Other provinces run their own regimes, so ask your lawyer which apply where the business operates.

The GST/HST election

Under section 167 of the Excise Tax Act, a supplier and a recipient may make a joint election in prescribed form on the supply of a business or part of one. The recipient must be acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business or part as a business, and the Act excepts the case where the supplier is a registrant and the recipient is not. The CRA points to Form GST44 for the election. A buyer may make the election, and its filing, a term of the agreement. The exceptions and timing in the section are detailed, so have your accountant confirm that the election fits.

Licences and notices to a regulator

If the business holds a licence, the regulator may care about the change of owner. Alberta’s motor vehicle regulator, AMVIC, says a business that is closing or changing ownership must notify it in writing within 15 days of when it ceases activities related to the automotive business. Ask each regulator what a change of ownership requires and whether the buyer must hold its own licence on closing. The regulatory approvals page covers how those approvals can affect timing.