Key points
- Most Canadian private company sales follow the same path: adviser, confidential information memorandum, letter of intent, due diligence, purchase agreement, closing.
- Sellers usually prefer a share sale (capital gains treatment and the lifetime capital gains exemption); buyers often prefer an asset sale (stepped-up tax cost and fewer inherited liabilities).
- The lifetime capital gains exemption is C$1.25 million for qualified small business corporation shares disposed of after June 24, 2024. The shares must pass three tests, and failing one costs real money.
- Buyers price on normalized EBITDA. A quality of earnings report done before going to market removes most of the surprises that cut price late in diligence.
- A non-resident seller needs a section 116 clearance certificate, or the buyer may hold back 25% of the price.
Selling a business in Canada is mostly a question of evidence. The buyer agrees to a headline price in a letter of intent, then spends six to twelve weeks testing whether the business really earns what the seller says, owns what it claims and carries no hidden liabilities. Every gap found in that period turns into a price reduction, an indemnity, a holdback or a walk-away. Sellers who prepare the evidence before the buyer arrives keep more of the price.
This guide covers the Canadian process from start to finish, the tax choices that shape the deal, the documents buyers ask for, and how to run the data room. Tax figures were checked against CRA and Department of Finance sources on October 17, 2026. Tax rules change and every sale has its own facts, so confirm the treatment with your CPA and tax lawyer before you sign anything.
How a private sale runs in Canada
For a business worth a few million dollars or more, most owners hire a business broker, an M&A adviser or the corporate finance group of an accounting firm. The adviser prepares a short teaser, signs non-disclosure agreements with interested parties, and releases a confidential information memorandum (CIM) describing the business, its people and its financials. Buyers send indications of interest, the seller picks one or a few, and a letter of intent (LOI) sets the price, structure, exclusivity period and key conditions.
Due diligence starts after the LOI. This is when the data room opens to the buyer, its lenders, lawyers and accountants. Lawyers on both sides draft the share or asset purchase agreement in parallel, and the representations, warranties and indemnities in that agreement are shaped directly by what diligence finds. Closing follows once financing, consents and any regulatory approvals are in place. Our selling a business use case lists the folders by industry.
The path of a Canadian private company sale
- Prepare
Clean up the books, normalize EBITDA, gather contracts
- Market
Teaser, NDAs, CIM to selected buyers
- LOI
Price, structure, exclusivity, conditions
- Diligence
Data room, Q&A, site visits, QoE review
- Agreement
Share or asset purchase agreement, disclosure schedules
- Close
Funds flow, consents, clearance certificates
Preparing before you go to market
The work that protects the price happens months before a buyer sees the CIM. Start with the minute book: many owner-managed Canadian companies have years of missing annual resolutions, share issuances that were never documented, or a shareholder agreement nobody has read since it was signed. Corporate counsel can ratify most gaps, but only if they are found early. Next, look at the financial statements. A buyer paying several million dollars will want at least review engagement statements, and for larger deals audited ones. Moving from a compilation to a review or audit takes a full year end, so it cannot be done once a buyer is waiting.
Then gather the contracts. Leases, customer agreements, supplier terms and licences should be signed, current and easy to find. Read each one for a change of control or anti-assignment clause; a landlord or key customer who must consent can hold up a closing for weeks. Finally, think about confidentiality. Employees, customers and competitors often learn about a sale through careless document requests. Limit the internal team who knows, use code names in the data room, and keep the employee census anonymized until a buyer is exclusive.
Share sale or asset sale
The structure decides who pays which tax and who keeps which liabilities. It is negotiated in the LOI, and it changes what the buyer needs to see in the room.
| Issue | Share sale | Asset sale |
|---|---|---|
| Income tax for the seller | Capital gain on the shares, 50% inclusion; the lifetime capital gains exemption may apply | The corporation sells assets; recapture of depreciation and income inside the company, then a second layer of tax to pay the money out |
| Buyer’s tax cost | Inherits the company’s existing tax cost of its assets | Gets a fresh cost base, including goodwill, which it can depreciate |
| GST/HST | Shares are a financial instrument, so no GST/HST on the price | GST/HST applies to taxable assets unless the parties file a section 167 election (Form GST44) on the sale of all or substantially all of the business assets |
| Land transfer tax | Usually none in provinces like Ontario, because title to the land does not change | Payable where land changes hands (for example Ontario land transfer tax or BC property transfer tax); Alberta has registration fees instead |
| Liabilities | Buyer takes the company with its history, including tax, environmental and litigation exposure; protection comes from indemnities | Buyer picks the assets and liabilities it assumes; most past liabilities stay with the seller |
| Contracts and permits | Stay with the company, subject to change of control clauses | Need assignment and often third-party consent |
| Employees | Employer does not change | Buyer becomes a successor employer under provincial employment standards if it hires the staff |
The section 167 election deserves a closer look. It lets a GST/HST-registered seller and buyer agree that no tax is collected on the transfer of a business, provided the buyer acquires all or substantially all of the property needed to carry it on. Without it, a buyer of a C$4 million Ontario business could face a large HST bill at closing and wait to claim it back as an input tax credit. The election is made on Form GST44 and filed with the CRA, and both parties should check the filing rules in force at the time of sale.
The lifetime capital gains exemption
Each Canadian-resident individual can shelter capital gains on qualified small business corporation (QSBC) shares, up to a lifetime limit of C$1.25 million for dispositions after June 24, 2024. The inclusion rate on capital gains remains 50%; the proposed increase was cancelled in March 2025. Where family members each own shares directly or through a family trust, each one can claim their own exemption, which is why many owners reorganize years before a sale.
To qualify, the shares must pass three tests, set out in the Income Tax Act definition of a qualified small business corporation share:
| Test | What it requires | Common failure |
|---|---|---|
| Asset test at the time of sale | All or substantially all (CRA uses 90% or more) of the fair market value of the company’s assets is used principally in an active business carried on primarily in Canada | Surplus cash and investments built up in the operating company |
| 24-month asset test | Throughout the 24 months before the sale, more than 50% of the assets were used in an active business | A large investment portfolio held for years before purification |
| 24-month holding period | Nobody other than the seller or a related person owned the shares in the 24 months before the sale | Shares recently issued from treasury or bought from an unrelated party |
Purifying the company (moving surplus cash out, often to a holding company, before the sale) takes planning, and the 24-month test means it cannot be fixed the month before closing. Use the calculator below to see the effect of the exemption on your own numbers, or open the full lifetime capital gains exemption calculator.
Lifetime capital gains exemption on a share sale
Ignores alternative minimum tax, provincial rates and prior allowable business investment losses. Confirm with your tax adviser.
Income Tax Act s. 110.6 and CRA guidance. Checked October 17, 2026.
Family transfers: Bill C-208 and the 2024 rules
Until 2021, selling your company to a corporation owned by your children could turn the capital gain into a deemed dividend under section 84.1 of the Income Tax Act, while a sale to a stranger kept capital gains treatment. Bill C-208, which received royal assent in June 2021, opened an exception. The federal government then replaced it with tighter rules that apply to transfers on or after January 1, 2024.
The current rules offer two paths: an immediate intergenerational business transfer, where control and management pass to the children within about three years, and a gradual transfer over five to ten years. Both require the children (or grandchildren, nieces and nephews in some cases) to take control through their corporation, keep it for a minimum period and actively run the business, and both involve a joint election with the CRA. A family sale needs the same data room discipline as an outside sale, because lenders and the CRA will both want the record. The family business succession use case covers how families usually organize it.
What buyers ask for
Buyers and their advisers work from a request list that usually runs to a few hundred items. The list below is the core of what appears in almost every Canadian private company sale.
Buyer due diligence requests for a Canadian private company
- Articles, by-laws and the complete minute book
- Register of individuals with significant control
- Shareholder agreements and any family trust deed
- Three to five years of financial statements (review or audit engagement)
- Monthly management accounts for the current and prior year
- T2 corporate returns and notices of assessment
- GST/HST, PST or QST returns and any CRA or Revenu Québec audits
- Payroll remittances, T4 summaries and WSIB or WCB clearance
- Customer list with revenue by customer and contract terms
- Top supplier agreements and pricing
- Leases for every location, with assignment clauses marked
- Bank and lender agreements, security registrations (PPSA searches)
- Employment agreements, contractor agreements, bonus plans
- Employee census with start dates for service calculations
- Group benefits and any registered pension plan
- Permits, licences and municipal approvals
- Environmental reports (Phase I and Phase II ESAs)
- Intellectual property registrations and assignments from founders
- Insurance policies and claims history
- Litigation, demand letters and employment standards complaints
- Privacy policy, breach records and PIPEDA or Law 25 compliance
- Inventory counts, aging and fixed asset register
Buyers will often release their own personal information requests after the LOI. Personal information about employees and customers can be disclosed for a prospective business transaction without consent under PIPEDA s. 7.2, provided the parties agree in writing to use it only for the deal, protect it, and return or destroy it if the deal fails. Quebec’s private sector act has a similar rule at s. 18.4, with an extra privacy impact assessment where information leaves the province. Our Quebec page covers bilingual rooms and Law 25 in more detail.
A sell-side data room index for a Canadian private company
- 01 01 Corporate Minute book, ISC register, shareholder agreements, org chart
- 02 02 Financial Statements, management accounts, budgets, working capital
- 03 03 Quality of earnings QoE report, normalization schedule, EBITDA bridge
- 04 04 Tax T2, GST/HST, payroll, CRA correspondence, QSBC purification steps
- 05 05 Commercial Customer and supplier contracts, pricing, pipeline
- 06 06 Real property Leases, title, land transfer tax analysis, environmental reports
- 07 07 Employees Agreements, census, benefits, pension, provincial standards compliance
- 08 08 Legal and regulatory Permits, licences, litigation, privacy
- 09 09 IP and technology Registrations, software licences, IT security
- 10 10 Insurance Policies, claims, loss runs
- 11 11 Closing Draft purchase agreement, disclosure schedules, consents, s. 116 certificate
Normalized EBITDA and quality of earnings
Canadian mid-market buyers price private companies on a multiple of earnings before interest, tax, depreciation and amortization. The reported number rarely matches what a new owner will earn. Owner salaries above or below market, personal expenses run through the company, one-off legal costs, related-party rent and non-recurring revenue all distort it. Normalization adjusts for those items and produces the EBITDA a buyer can expect.
A quality of earnings (QoE) report is an accountant’s independent review of that normalized figure, its working capital and its cash conversion. Buyers commission their own; sellers increasingly order one before going to market (a sell-side QoE) so that the number in the CIM survives diligence. The sell-side due diligence use case explains how sellers run that review.
| Adjustment | Example | Direction |
|---|---|---|
| Owner compensation | Owner pays herself C$400,000 where a hired CEO would cost C$220,000 | Adds back C$180,000 |
| Personal expenses | Family vehicles and travel on the company card | Adds back |
| Related-party rent | Building owned by the owner’s holding company, leased below market | Reduces EBITDA to market rent |
| One-off costs | Litigation settlement, a failed acquisition | Adds back, if truly non-recurring |
| Lost customer | A major customer has given notice | Reduces forward EBITDA |
Representations, disclosure schedules and the record
The purchase agreement contains representations and warranties: statements by the seller about the business, such as “the financial statements fairly present the financial position” or “there is no litigation except as disclosed”. The seller qualifies those statements in disclosure schedules, which list the exceptions. Anything properly disclosed is generally carved out of the seller’s indemnity, so a careful disclosure schedule is the seller’s best protection after closing.
The data room is the evidence for that schedule. Many Canadian purchase agreements define what the buyer is deemed to know by reference to the documents posted in the room before a certain date. That makes indexing, version control and an exportable audit trail more than an administrative detail. At closing, ask the provider for a full archive of the room on encrypted media or a secure download, and keep it for at least as long as the survival period of the representations, plus the limitation period that follows. Representation and warranty insurance is now common in Canadian mid-market deals, and the insurer’s underwriter will also read the room before binding a policy.
Financing the buyer: vendor take-back and BDC
Many small and mid-sized Canadian sales close with a mix of buyer equity, bank debt and seller financing. In a vendor take-back (VTB), the seller lends part of the price to the buyer and is repaid over several years with interest. It bridges a valuation gap but leaves the seller exposed to the business’s future; the security, ranking behind the bank and default terms all need negotiation.
The Business Development Bank of Canada (BDC) offers business purchase and transfer loans for buyers, including management buyouts and family successions, and can refinance a vendor take-back. BDC requires an agreed sale price before it reviews an application, so the LOI and a solid data room come first. Lenders will want their own access group with view-only rights to financial, tax and legal folders.
Non-resident sellers and section 116
If the seller is not a resident of Canada and the shares are taxable Canadian property (for example, shares deriving most of their value from Canadian real estate or resource property), section 116 of the Income Tax Act applies. The seller notifies the CRA on Form T2062, before closing or within 10 days after, and pays or secures tax to obtain a certificate of compliance. Without the certificate, the buyer can be liable for 25% of the purchase price for most capital property, so buyers hold back that amount until the certificate arrives. Plan for weeks, sometimes months, of CRA processing, and keep the correspondence in the closing folder.
Employees and successor employer rules
In a share sale, the employer does not change. In an asset sale, the buyer usually offers jobs to the existing staff, and provincial employment standards treat the buyer as a successor employer. In Ontario, section 9 of the Employment Standards Act, 2000 treats employment as continuous when a business is sold and the buyer employs the seller’s staff, so prior service counts for notice and severance. British Columbia has a similar rule at s. 97 of its Employment Standards Act, and Quebec’s labour standards act and unionized workplaces have their own continuity rules. Buyers will need the employee census with start dates to cost this risk. Our Ontario page covers ESA questions buyers raise most.
What the data room costs
A small business or professional practice sale with one buyer usually needs a room for three to four months. A sale with several bidders needs more users and a longer term. Prices vary widely between flat-rate and quote-only vendors. Our data room pricing page explains the Canadian dollar bands, and the estimator below shows the range for your province and project size. Practice sales have their own patterns; see the dental practice and accounting practice use cases.
Estimate your sale data room cost in Canadian dollars
Choose the deal type, how many people on your side need access, the number of months and where your company is.
| Data room | Pricing | Total with tax |
|---|---|---|
 Onehub | Flat | C$95 |
 Citrix ShareFile | Flat | C$353 |
 Box | Per user | C$759 |
 Digify | Flat | C$768 |
 Ellty | Flat | C$954 |
 SecureDocs | Flat | C$1,600 |
 CapLinked | Flat | C$1,912 |
 DocSend | Per user | C$2,314 |
 iDeals | Estimate | ~C$11,300 to C$33,900 |
 Datasite | Estimate | ~C$11,300 to C$33,900 |
 Ansarada | Estimate | ~C$11,300 to C$33,900 |
 Firmex | Estimate | ~C$11,300 to C$33,900 |
 Drooms | Estimate | ~C$11,300 to C$33,900 |
 Intralinks | Estimate | ~C$11,300 to C$33,900 |
 SmartRoom | Estimate | ~C$11,300 to C$33,900 |
 DealRoom | Estimate | ~C$11,300 to C$33,900 |
 ShareVault | Estimate | ~C$11,300 to C$33,900 |
 Venue by DFIN | Estimate | ~C$11,300 to C$33,900 |
Rows marked Flat or Per user start from the price each vendor lists in US dollars, turned into Canadian dollars at the Bank of Canada rate for October 16, 2026 (US$1 = C$1.4154) and taxed at your province's rate. Rows marked Estimate belong to vendors that keep prices private; for them we show the range we see for the kind of project you chose, which is not that vendor's own figure. For planning only.
Common mistakes when selling a Canadian business
| Mistake | Consequence | Better approach |
|---|---|---|
| Failing the QSBC 24-month test | Loss of up to C$1.25 million of exemption per shareholder | Purify the company two or more years before a sale |
| Opening the room before the LOI | Sensitive data shared with buyers who never commit | Share the CIM first; open diligence folders after exclusivity |
| No sell-side normalization | Buyer’s QoE cuts EBITDA and price late in the deal | Prepare the EBITDA bridge and support it in the room |
| Forgetting the s. 167 election | HST paid at closing, cash tied up until refund | Agree the election in the LOI and file Form GST44 |
| Ignoring successor employer rules | Unexpected severance liability for long-service staff | Disclose service dates and model the cost |
| Non-resident shareholder discovered late | 25% holdback delays closing | Check residency of every shareholder at the start |
| Minute book gaps | Delays to legal opinions and closing | Have corporate counsel update records before marketing |
If you are unsure what kind of room your sale needs, the data room quiz asks a few questions about deal size and bidders and suggests a shortlist.
How long does it take to sell a business in Canada?
For an owner-managed company, six to twelve months from hiring an adviser to closing is common. Preparation and marketing take three to six months, and due diligence plus the purchase agreement usually take another two to four. Missing financial records, landlord consents and regulatory approvals are the usual sources of delay.
Can I claim the lifetime capital gains exemption on an asset sale?
Not directly. The exemption applies to gains on qualified small business corporation shares, not to assets sold by the corporation. That is the main reason sellers push for a share sale. In some cases, owners combine structures, for example selling shares while the buyer pays separately for specific assets. Discuss the trade-offs with your tax adviser.
Do I charge GST or HST when I sell my business?
On a share sale, no; shares are financial instruments. On an asset sale, GST/HST applies to taxable assets unless the seller and buyer jointly elect under section 167 of the Excise Tax Act using Form GST44. The election requires the buyer to acquire all or substantially all of the property needed to carry on the business.
What is a vendor take-back and should I accept one?
A vendor take-back is a loan from the seller to the buyer for part of the price, repaid over several years. It can close a valuation gap or help a buyer qualify for bank or BDC financing. Accept one only with proper security, a clear ranking behind senior lenders, interest, and default remedies, and price the risk into the deal.
When should I open a data room for a sale?
Build it before you go to market, but open the full diligence folders only after a letter of intent. Before that, buyers see the CIM and perhaps a small set of summary documents. Building early lets you find gaps, such as missing leases or unsigned contracts, while there is still time to fix them.
What happens to my employees if I sell the assets of my business?
If the buyer hires them, provincial employment standards usually treat their service as continuous, so the buyer inherits their length of service for notice and severance. Employees the buyer does not hire may be entitled to termination pay from the seller. Disclose service dates and agreements early so both sides can plan.
I live outside Canada. What extra steps apply to my sale?
If your shares are taxable Canadian property, you must notify the CRA under section 116 using Form T2062 and obtain a certificate of compliance. Until you do, the buyer can hold back 25% of the price for most capital property. Start the CRA process as soon as the price is agreed.
Listing on the TSX Venture Exchange or TSX: the due diligence data room
PIPEDA section 7.2: sharing personal information in a deal data room