What seller representations belong in a business purchase agreement?

A representation is the seller’s statement of fact about the business, given as part of the contract. It matters because, if it proves false, the agreement may give you a claim. Your lawyer decides the wording, but you can help by listing what you are relying on. A useful test is whether you can check the statement against a record or a registry before closing, and whether the agreement says what happens if it is untrue.

Corporate records and ownership

If the target is a federal corporation, the Canada Business Corporations Act (s. 20) requires records that include the articles and by-laws, any unanimous shareholder agreement, minutes of meetings and resolutions of shareholders, and a securities register. A representation can say these are complete and that the securities register shows who owns what. Provincial corporations are governed by their own statutes.

Claims, workers and accounts

Ask for a statement that no claim is pending or threatened, with a schedule of any that exist; see what to do if a seller hid a lawsuit. In Ontario, the WSIB says that if you are selling or purchasing a business’s assets, you should get a purchase certificate, and that it may hold the purchaser liable for amounts the vendor owed up to the date of sale without a valid one. A representation about the status of the vendor’s account does not replace that certificate. Other provinces have their own regimes.

Customer and employee information

PIPEDA (s. 7.2) lets organizations that are parties to a prospective business transaction use and disclose personal information without the individual’s knowledge or consent if conditions are met, including an agreement that requires the recipient to use and disclose it solely for purposes related to the transaction and to protect it by security safeguards appropriate to its sensitivity. The section does not apply where the primary purpose or result of the transaction is the purchase, sale or other acquisition or disposition, or lease, of personal information (s. 7.2(4)). A representation can say the information was collected and shared in line with the law that applies. Quebec has its own statute, the Act respecting the protection of personal information in the private sector.

Backing the statements

• A disclosure schedule listing exceptions, so surprises are visible before closing.
• An indemnity tied to each representation, with its cap and time limit stated.
• A statement of how long the representations survive after closing.