Buying or Selling a Small Business in Alberta | Legal Checklist

Buying or selling a small business is a major milestone—one that can bring significant opportunity, but also substantial legal and financial risk if the process is not handled carefully. Whether you are stepping into entrepreneurship for the first time or preparing to sell the business you spent years building, understanding the legal steps involved is essential to a successful transaction.

This guide provides a clear, step-by-step legal checklist to help Alberta buyers and sellers navigate the process with confidence.

Step 1: Decide Whether the Deal Is a Share Sale or Asset Sale

In Alberta, small business transactions typically take one of two forms:

Share Sale

The buyer purchases shares of the corporation, taking over the business with all of its assets, contracts, employees, and liabilities.
Often simpler for sellers but riskier for buyers without proper due diligence.

Asset Sale

The buyer selects specific assets, such as equipment, inventory, contracts, intellectual property, or customer lists.
Limits liability but may require multiple third-party consents (landlords, lenders, suppliers).

The structure greatly affects taxes, liability, and contract obligations. A business lawyer should help evaluate the advantages of each approach.

Step 2: Sign a Letter of Intent (LOI) or Term Sheet

Before drafting a full purchase agreement, most parties sign an LOI outlining:

• Purchase price
  
• Deal structure (share vs. asset sale)
  
• Payment terms
  
• Closing date
  
• Conditions (financing, due diligence, approvals)
  

LOIs are usually non-binding except for confidentiality and exclusivity clauses. They set expectations early and prevent misunderstandings.

Step 3: Conduct Thorough Due Diligence

Due diligence is one of the most important stages for buyers—and one of the most overlooked by sellers.

Buyers should review:

Financial Records:

• Tax returns (3–5 years)
  
• Financial statements
  
• Balance sheets
  
• Cash flow
  
• Accounts receivable/payable
  

Legal Documents:

• Corporate minute book
  
• Shareholder agreements
  
• Contracts with suppliers, landlords, and customers
  
• Licences and permits
  
• Employment agreements
  
• Existing or potential lawsuits
  

Assets:

• Equipment and inventory
  
• Leases
  
• Real property
  
• Intellectual property (trademarks, copyrights, software)
  

Employment & HR:

• Employee list and compensation
  
• Outstanding vacation pay
  
• Severance or termination risks
  

Compliance:

• Workplace safety documents
  
• Privacy compliance
  
• Regulatory obligations
  

A lawyer reviews these documents to identify hidden liabilities or negotiation leverage.

Sellers should prepare:

• Up-to-date financials
  
• Organized contracts and records
  
• List of existing liabilities
  
• Updated minute book
  
• Clear explanation of any legal disputes
  

Proper preparation increases buyer confidence and reduces deal delays.

Step 4: Negotiate the Purchase Agreement

The purchase agreement is the core legal document. It must be drafted with precision to avoid disputes after closing.

Key sections include:

• Purchase price and adjustments
  
• Payment terms (cash, financing, vendor take-back loans)
  
• Assets or shares being transferred
  
• Representations and warranties from both buyer and seller
  
• Indemnity clauses to allocate risk
  
• Non-competition and non-solicitation clauses
  
• Closing conditions (financing, approvals, tax clearances)
  
• Transition support if seller will assist for a period
  

Never use a template agreement—Alberta business sales vary widely in complexity, and poorly drafted contracts can create years of legal problems.

Step 5: Consider Tax Implications Early

Buying or selling a business can trigger significant tax consequences. Early tax planning reduces surprises later.

For sellers:

• Capital gains exemptions may apply (Lifetime Capital Gains Exemption – LCGE)
  
• GST/HST rules depend on deal structure
  
• Corporate purifications may be required before sale
  

For buyers:

• Properly allocating purchase price can reduce taxes
  
• GST/HST obligations must be handled correctly
  
• Asset purchase may allow for beneficial tax deductions
  

Legal and tax advisors should coordinate from the start of the transaction.

Step 6: Review and Transfer Contracts, Licences, and Permits

Many small businesses rely on third-party contracts that cannot automatically be transferred in a sale.

Contracts requiring consent may include:

• Commercial leases
  
• Supplier agreements
  
• Franchise agreements
  
• Equipment leases
  
• Client contracts
  

If consents are not obtained, a buyer may end up without the ability to operate the business as intended.

A lawyer ensures the proper legal notices and consents are prepared and submitted.

Step 7: Address Employees and Employment Liabilities

How employees are handled depends on whether the deal is a share sale or asset sale.

Share Sale

Employees remain employed by the corporation automatically. Their:

• Seniority
  
• Vacation entitlements
  
• Employment agreements
  
• Severance histories
  

all carry forward.

Asset Sale

The buyer decides which employees to retain.
If employees are not rehired, the seller may owe termination pay or severance.

New employment agreements must be drafted for employees who transition to the buyer.

Employment issues are one of the most common sources of disputes—legal advice at this stage is essential.

Step 8: Prepare for Closing

Closing documents may include:

• Bill of sale
  
• Share certificates or transfer forms
  
• Corporate resolutions
  
• Updated minute book
  
• Lease assignments
  
• GST elections
  
• IP assignments
  
• Non-compete agreements
  
• Vendor take-back loan documents
  
• Transition services agreements
  

A lawyer coordinates signing, ensures compliance, and confirms funds flow correctly.

Step 9: Post-Closing Obligations

After closing, both parties may have ongoing duties, including:

• Filing corporate changes
  
• Notifying CRA
  
• Updating licences and permits
  
• Providing transition support
  
• Completing inventory adjustments
  
• Handling holdback or earn-out payments
  

Clear documentation prevents disputes months or years later.

Checklist Summary: What Buyers Must Do

• Decide on asset vs. share purchase
  
• Conduct financial, legal, and operational due diligence
  
• Secure financing
  
• Review employment liabilities
  
• Obtain third-party consents
  
• Negotiate purchase agreement terms
  
• Address tax considerations early
  
• Plan for transition and integration
  

Checklist Summary: What Sellers Must Do

• Organize financial records and contracts
  
• Resolve outstanding liabilities where possible
  
• Prepare the corporate minute book
  
• Ensure compliance with licences and permits
  
• Understand potential tax obligations
  
• Review employment relationships
  
• Negotiate favourable terms in the purchase agreement
  
• Prepare for transition support if required
  

Why a Business Lawyer Is Essential for a Smooth Transaction

Business purchase and sale agreements are legally complex documents that shape the future of your business and financial security. A lawyer ensures:

• Hidden liabilities are identified
  
• All legal obligations are met
  
• Contracts are enforceable and complete
  
• Risks are properly allocated
  
• You are protected long after closing
  
• Deadlines and conditions are managed correctly
  
• Negotiations reflect your best interests
  

A smooth transaction is never accidental—it requires careful legal planning and execution.

Speak With a Business Lawyer in Alberta

Whether you are buying or selling a small business, Libra Law’s Business Law team can guide you through the process with clarity, efficiency, and strong legal protection.

To learn more or speak with a lawyer, visit:
https://libra-law.ca/service/business-law

This article is for general informational purposes only and does not constitute legal advice. To obtain advice specific to your situation, please consult a lawyer or qualified professional.