How do I buy an existing ecommerce business in Canada?

Buying an existing ecommerce business means buying a mix of things that are not all in one place: a website and store, a brand, a customer list, supplier arrangements and, possibly, stock held in a warehouse. The steps follow the same shape as any business purchase, but the assets are less visible and the legal questions are different. This page covers what to review, the customer-data rule that governs what a seller may share, how brand rights move, and the sales-tax points specific to selling online. How you pay for it is covered separately in financing options to buy a business.

Follow the usual buying steps

BDC’s buying guide treats due diligence and negotiating the purchase agreement as the step that comes after an initial agreement on terms, and notes that both parties usually want to sign a letter of intent or similar document before a formal due diligence begins. Ecommerce buyers can plan for the same order. BDC says the letter of intent should include a purchase price range, a commitment from the seller to provide all necessary records, terms for confidentiality and communication, and the duration of negotiation exclusivity. Ask your lawyer about also saying in writing which online assets are part of the sale, such as the domain, the store account and the social media accounts.

What due diligence covers

BDC says the vendor provides commercial, financial, legal and other information so you can understand how the business works. Its checklist asks whether most of the company’s sales come from a small number of customers, or whether the business relies heavily on one supplier. For an online store, that translates into questions you can ask: how much of the revenue comes from one marketplace or one advertising channel, whether one supplier supplies the main products, and whether the sales records match the bank and payment-processor records. Ask for reports directly from the platforms rather than only screenshots from the seller. BDC also says due diligence gives the buyer access to the premises, records and, in some cases, key suppliers, customers and employees. For an online business, ask what the equivalent access would be: the store back end, the advertising accounts, the inventory counts at any warehouse, and a call with the main supplier. Ask your lawyer whether the letter of intent should also say how long the review will last.

Customer data and PIPEDA

A customer list may be central to an ecommerce deal. PIPEDA s.7.2 applies in addition to the circumstances in s.7(2) and (3) and lets organizations that are parties to a prospective business transaction use and disclose personal information without the knowledge or consent of the individual if two conditions are met. First, the organizations have an agreement that requires the organization receiving the information to use and disclose it solely for purposes related to the transaction, to protect it by security safeguards appropriate to its sensitivity, and, if the transaction does not proceed, to return or destroy it within a reasonable time. Second, the information is necessary to determine whether to proceed with the transaction and, if the decision is to proceed, to complete it. Subsection 7.2(4) says these provisions do not apply to a transaction whose primary purpose or result is the purchase, sale or other acquisition or disposition, or lease, of personal information. PIPEDA s.26(2)(b) also allows an organization or activity to be exempted from PIPEDA within a province that has substantially similar legislation, so have your lawyer check which privacy law covers the seller and how it fits your deal.

The brand and its trademark

The brand name may be one of the main things you are buying. The Canadian Intellectual Property Office says you can sell, bequeath or transfer trademark rights to someone else through an assignment. It also says registering a trademark gives you legal title to it, the way a deed gives you title to real estate. Ask whether the brand is registered, who is named as the owner, and whether the seller can assign it. If the name is not registered, ask your lawyer what you will own after closing and how to document it in the purchase agreement.

Sales tax on online sales

The CRA says the GST/HST digital-economy rules, effective July 1, 2021, generally apply to non-resident suppliers, distribution platform operators and accommodation platform operators. Non-resident vendors who supply qualifying goods, including goods located in a fulfillment warehouse in Canada, may be affected. Ask the seller whether it is registered, who collects the tax on its sales, and whether any sales go through a platform that collects it. If the seller is a Canadian business selling its operating business, or part of it, ask your accountant whether the GST/HST election the CRA describes for a business sale is available; the CRA says it cannot be made if only one or more assets of the business are sold.

• Sign a letter of intent that lists the online assets included.
• Verify revenue against platform reports, bank deposits and processor statements.
• Check whether sales or suppliers are concentrated in one source.
• Confirm the customer-data transfer fits PIPEDA s.7.2 and its limits.
• Confirm who owns the brand and how the trademark will be assigned.