What happens between the Letter of Intent and closing in a Canadian business sale?
For a Canadian business owner selling shares, the Letter of Intent (LOI) marks a major milestone — it signals the buyer's serious interest — but it is only the beginning of the closing process. Between the LOI and the final wire transfer of funds lies a flurry of documents, negotiations and checks designed to ensure the deal closes smoothly and protects the seller's interests. This guide focuses on a private company share sale, the most common structure for mid-sized Canadian businesses, drawing on standard practices under the Canada Business Corporations Act and provincial equivalents.
How long does it take to go from LOI to closing?
Post-LOI, the deal shifts from high-level terms to binding contracts. Expect 4 to 12 weeks — or longer for complex deals — of back-and-forth with lawyers, due diligence (where the buyer scrutinizes your books) and regulatory approvals if needed (such as a Competition Act review for larger transactions).
What are the three phases from LOI to funds in hand?
1. Pre-closing negotiations — lock in terms and prepare supports (e.g., line up debt payoffs)
2. Closing day execution — confirm everything is ready, then transfer shares and trigger funds
3. Post-closing follow-up — handle ongoing incentives such as earnouts
In a straightforward sale, you might handle 10 to 15 documents. If your deal includes extras — an earnout (extra payments if the business hits performance targets), a vendor note (you finance part of the price), an equity roll (you reinvest some proceeds as shares in the buyer's company), senior debt payoff, or a lender switch — the list grows to 20 or more.
What is the seller-protective document sequence?
The documents should be executed in an order that prioritizes seller protections: start with binding commitments (like the Share Purchase Agreement) that lock in your price and safeguards before handing over control. Only after confirming payoffs, consents and conditions do you sign transfers or resignations — ensuring no loose ends. This flow minimizes risks like delayed payments or title issues:
- First, binding commitments: the Share Purchase Agreement (SPA) locks in price, representations, warranties and indemnities
- Next, supporting confirmations: debt payoff letters, third-party and regulatory consents, satisfaction of closing conditions
- Last, transfers and resignations: share transfers, director/officer resignations and related filings — signed only after conditions are acknowledged
(Note: a federal or Ontario-based private company is assumed; Quebec deals may require additional notarization.)
What happens on closing day and how do the funds arrive?
Closing can be a “sign-and-close” (all at once, often virtual) or staggered. On closing day, the seller e-signs the final documents (e.g., transfers, after conditions are acknowledged), the lawyer confirms payoffs wired to the old lender and releases are filed, and then the funds wire in. For a $10 million deal:
- Cash portion (e.g., 70%): wired instantly to the seller's or escrow's account via SWIFT or domestic EFT, with the bank confirming receipt the same day
- Vendor note: formalized at closing, with payments starting later (e.g., quarterly)
- Earnout: calculated and measured over 1 to 3 years, paid on milestones
- Equity roll: vests immediately, but liquidity comes via a future sale
- Debt payoff: wired simultaneously to the lender, with releases filed right after
Watch for adjustments: the final price might change based on working capital or inventory counts (netted via the wire). Plan ahead for taxes — capital gains can be significant, though rollovers may defer them.
Why does understanding this process matter?
Knowing the sequence lets you manage your own and other shareholders' expectations, including unanticipated delays (e.g., lender consents can take 2 to 4 weeks), and gives you the insight to push back on a rushed process. Selling isn't just paperwork — it is your legacy handover; following a clear, seller-protective path lets you close confidently with funds in hand.
Key facts: closing a Canadian business sale
Structure: private company share sale (most common for mid-sized Canadian businesses)
LOI-to-close timeline: 4–12 weeks, longer for complex deals
Three phases: pre-closing negotiations, closing day execution, post-closing follow-up
Document count: 10–15 for a simple deal; 20+ with earnouts, vendor notes, equity rolls or debt payoffs
Seller-protective sequence: sign binding commitments (SPA) first; sign transfers and resignations last, after conditions are confirmed
Funds at closing: cash portion wired same-day via SWIFT/EFT; vendor notes, earnouts and equity rolls realized over time
Common delay: lender consents can take 2–4 weeks
Disclaimer: This article is for general informational purposes only and is not legal advice. Every deal is unique — consult your M&A lawyer and accountant early to tailor the process to your situation.
