Acquiring an operating business is a significant undertaking that demands a careful balance of strategic vision, financial prudence, and legal foresight. Whether the transaction is structured as a share purchase or an asset acquisition, the buyer must approach the process with a clear understanding of the business’s current state, its future potential, and the risks that may be inherited through the transaction.

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Part 1: Preliminary Considerations and the Role of Due Diligence

At the heart of this process lies due diligence—a comprehensive investigation that enables the buyer to make informed decisions about the acquisition of the target business and negotiate appropriate protections for the specific risks the subject business presents. This first part of the article explores the foundational considerations a buyer must address before proceeding with an acquisition and examines the purpose, scope, and value of due diligence in the context of mergers and acquisitions.

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Preliminary Considerations

Before engaging in formal due diligence or entering into negotiations, a prospective buyer should reflect on several critical preliminary considerations. These early-stage reflections help shape the direction of the transaction and ensure that the buyer’s objectives are aligned with the realities of the target business.

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One of the foremost considerations is strategic alignment. The buyer must assess whether the target business complements its existing operations, fills a gap in its market presence, or offers access to new technologies, customer bases, or geographic regions. Acquisitions are often pursued to accelerate growth, diversify revenue streams, or achieve economies of scale. However, without a clear strategic rationale guiding the acquisition, the buyer will have difficulty ensuring the transaction is appropriately vetted and documented.

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Financial capacity is another essential factor. The buyer must evaluate whether it has the resources to fund the acquisition, including not only the purchase price but also the ancillary costs associated with legal, accounting, and advisory services. In many cases, the buyer may need to secure external financing, which introduces additional complexity and timing considerations. Understanding the financial implications of the transaction at the outset helps avoid delays and ensures that the buyer can act decisively when the opportunity arises.

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The structure of the transaction also warrants early attention. Buyers must consider whether to pursue a share purchase, in which they acquire ownership of the target company itself, or an asset purchase, in which they acquire select assets and liabilities from the target. Each structure carries distinct legal, tax, and operational consequences. For example, a share purchase may be simpler in terms of continuity but may expose the buyer to hidden liabilities. An asset purchase, by contrast, allows the buyer to cherry-pick assets and avoid certain obligations, but may require more extensive third-party consents and result in higher transaction costs due to the application of transfer taxes and registration fees. Taxation considerations also factor heavily into the structure of most transactions, and often dictate that pre-transaction reorganization of the seller’s (or buyer’s) business structure may benefit one or both parties to the proposed transaction.

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Confidentiality and exclusivity are also important at this stage. Before sensitive information is exchanged, the parties typically enter into a confidentiality agreement to protect proprietary data and trade secrets. In some cases, the buyer may also seek an exclusivity agreement to prevent the seller from negotiating with other potential buyers during the due diligence period. These agreements help create a secure environment for open dialogue and information sharing.

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Finally, the parties often execute a letter of intent (LOI) or term sheet to outline the key terms of the proposed transaction. While typically non-binding, the LOI serves as a roadmap for the negotiation and due diligence process. It may include provisions regarding price, structure, timelines, and conditions precedent, including a clause that makes the transaction subject to the buyer’s satisfactory completion of due diligence.

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Understanding Due Diligence

Due diligence is the investigative process through which a buyer evaluates the target business’ operations, financial condition, legal obligations, and potential risks. It is a cornerstone of any acquisition, providing the buyer with the information needed to confirm the value of the business, identify red flags, and negotiate appropriate contractual protections to mitigate the risks associated with any concerns identified throughout the process. Due diligence is not merely a legal formality; it is a critical exercise in risk management and informed decision-making.

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The scope of due diligence is broad and multifaceted. It encompasses legal, financial, tax, operational, and commercial inquiries, among others. The process typically begins concurrently with the negotiation of the LOI (with due diligence in respect of key financial and operational matters having been carried out in advance of the LOI negotiation to ensure the transaction is a strategic fit) and runs concurrently with the negotiation of the definitive purchase agreement. During this period, the buyer’s and their advisors review documents, conduct interviews, inquire with regulators and business partners of the target, and perform analyses to uncover any issues that may affect the transaction or the post-closing integration of the business.

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The Purpose and Value of Due Diligence

The primary purpose of due diligence is to enable the buyer to make an informed decision about whether to proceed with the transaction and on what terms. It allows the buyer to assess the true value of the business, understand its liabilities, and identify any legal or operational risks that may impact future performance. In this sense, due diligence serves as both a diagnostic tool and a negotiation lever.

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Through due diligence, the buyer can validate the assumptions underlying the purchase price and financial projections. For example, a review of the target’s financial statements may reveal inconsistencies in revenue recognition, underfunded liabilities, or unsustainable margins. These findings can lead to adjustments in the purchase price or the inclusion of earn-out provisions to align incentives.

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Due diligence also helps the buyer identify areas where contractual protections are needed. If the investigation uncovers unresolved litigation, regulatory non-compliance, failure to appropriately document key business relationships with binding legal agreements, or environmental liabilities, the buyer may seek specific indemnities, covenants, or warranties in the purchase agreement to mitigate the risk of loss or expense arising from these matters. In some cases, the buyer may require that a portion of the purchase price be held in escrow to cover potential claims for breach of the warranties or covenants provided by the seller.

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Additionally, due diligence informs the structuring and documentation of the transaction. It may reveal the need for third-party consents, regulatory approvals, or ancillary agreements such as transition services arrangements, updated employment contracts, or the implementation of written agreements with key customers, suppliers, and business partners. It also enables the buyer to plan for the integration of the target’s operations, systems, and personnel, which is critical to realizing the anticipated synergies of the acquisition.

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Types of Due Diligence

Due diligence is typically divided into several categories, each requiring specialized expertise. Legal due diligence focuses on the target’s corporate structure, contracts, litigation, employment matters, intellectual property, and regulatory compliance. Financial due diligence examines the accuracy of financial statements, revenue streams, cash flow, and accounting policies. Tax due diligence assesses the target’s tax filings, liabilities, and the tax implications of the transaction for both parties.

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Commercial due diligence evaluates the target’s market position, competitive landscape, customer relationships, and growth prospects. Operational due diligence looks at supply chains, customer and supplier relationships, IT systems, facilities, and human resources. In certain industries, environmental due diligence is essential to assess potential liabilities arising from contamination or regulatory breaches. Increasingly, buyers also conduct privacy and cybersecurity due diligence to evaluate the target’s data protection practices and compliance with privacy laws such as Personal Information Protection Act, Personal Information Protection and Electronic Documents Act, or the E.U.'s General Data Protection Regulation.

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Limitations of Due Diligence

Despite its importance, due diligence is not without limitations. Time constraints often pressure buyers to complete their investigations quickly, especially in competitive bidding scenarios. Cost considerations may limit the scope of the review, particularly for smaller transactions. Sellers may restrict access to sensitive information or key personnel, citing confidentiality or competitive concerns. In some cases, the buyer must rely on representations and warranties in the purchase agreement to address risks that cannot be fully investigated.

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Furthermore, due diligence is inherently limited by the quality and completeness of the information provided. Some issues may only come to light after closing, underscoring the importance of robust contractual protections and post-closing remedies. For this reason, buyers often supplement their diligence with warranty and indemnity insurance, which can provide coverage for unknown risks and facilitate smoother negotiations.

Sellers can help build trust with potential buyers and facilitate an efficient due diligence process by organizing business documentation in a practical and accessible manner, and ensuring comprehensive availability and disclosure of all information relevant to the business to the buyer from the outset, as buyers may second guess their acquisition if they feel the seller is withholding pertinent information.

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Part 2: The Due Diligence Process, Documentation, and Advisory Team

Given the foundational importance of due diligence in the acquisition of an operating business, it is essential to explore how the due diligence process is conducted in practice. This part of the article delves into the mechanics of due diligence, the types of documents and information typically reviewed, and the professionals who play a critical role in guiding the buyer through this complex and often time-sensitive phase of the transaction.

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The Due Diligence Process

Except for preliminary due diligence related to fundamental matters confirming an acquisition is strategically appropriate, the due diligence process typically commences concurrently with the negotiation of a letter of intent or term sheet, which outlines the preliminary terms of the transaction, and the execution of a non-disclosure agreement between the parties. At this stage, the buyer is granted access to a range of information about the target business, often through a secure virtual data room or through other methods of document disclosure such as the delivery of document packages via email or secure portal. The process runs concurrently with the negotiation of the LOI, the definitive purchase agreement, and other transaction documents, allowing the buyer to tailor contractual protections based on the findings of the due diligence investigation. Often, more sensitive business information is withheld by the seller until later in the process when the definitive agreement is nearly settled or after it is settled but remains subject to certain limited conditions in favour of the buyer. This helps to protect the seller against disclosing information that could later be used for purposes adverse to the seller. For example, if the buyer were to learn the information before a binding agreement was in place and then back out of the transaction and use the information to its own advantage in a manner competitive or otherwise adverse to the seller.

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The first step in the due diligence process is the preparation and submission of a due diligence request list. This document outlines the categories of information the buyer wishes to review, including corporate records, financial statements, material contracts, employee agreements, intellectual property documentation, regulatory filings, tax filings, and many others that vary based on the specific target business. The request list is typically customized to reflect the nature of the target’s business, the industry in which it operates, and the specific concerns of the buyer. For example, a technology company may require a more detailed review of software licenses and data privacy policies, while a manufacturing business may necessitate a focus on environmental compliance and equipment leases.

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Once the request list is submitted, the seller’s legal and financial advisors coordinate the collection and organization of the requested documents; as noted above, an invested seller will have taken time in advance to collect and organize the relevant documentation, enabling swift identification and disclosure of relevant documents upon receipt of a request list. These materials are uploaded to a virtual data room, which allows the buyer’s team to access and review them remotely or may be delivered to the buyer electronically or otherwise for their review. The data room or other document disclosure system is often structured to mirror the categories in the request list, facilitating efficient navigation and review.

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As the buyer’s team reviews the documents, they may identify gaps in the information provided or areas that require further clarification. These follow-up inquiries are typically submitted in writing and may be supplemented by interviews or meetings with key members of the target’s management team. The seller may impose limitations on access to certain individuals or documents, particularly if the buyer is a competitor, in order to protect sensitive information and maintain business continuity until such time as the seller has certainty the transaction is going to proceed.

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Throughout the process, the buyer’s advisors maintain detailed notes and prepare internal reports summarizing their findings. These reports highlight areas of concern, assess the materiality of identified risks, and recommend specific contractual protections or deal modifications. The findings of the due diligence investigation directly inform the negotiation of the purchase agreement, including the scope of representations and warranties, the allocation of liabilities, and the inclusion of indemnification provisions or escrow arrangements.

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Documentation Reviewed During Due Diligence

The scope of documentation reviewed during due diligence is extensive and varies depending on the nature of the transaction. However, certain categories of documents are universally relevant and form the backbone of any due diligence investigation.

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Corporate records are among the first documents reviewed. These include the target’s articles of incorporation, bylaws, shareholder agreements, board resolutions, and minute books. The buyer’s legal team examines these documents to confirm the legal existence of the target, the authority of its directors and officers, and the ownership structure of its shares or assets. Particular attention is paid to any restrictions on share transfers, pre-emptive rights, or change-of-control provisions that may affect the transaction.

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Financial documents are equally critical. The buyer’s accountants and financial advisors review audited and unaudited financial statements, tax returns, budgets, forecasts, and management reports. This review aims to assess the financial health of the business, identify trends or anomalies, and evaluate the accuracy of the seller’s representations. Special attention is given to revenue recognition policies, contingent liabilities, and off-balance-sheet arrangements.

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Material contracts are another key area of focus. These include customer and supplier agreements, leases, loan documents, employment contracts, intellectual property licenses, and joint venture agreements. The buyer’s legal team reviews these contracts to identify any unusual terms, termination rights, change-of-control clauses, or consent requirements. Contracts that are critical to the business’s operations or revenue generation are scrutinized particularly closely.

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Employment and benefits documentation is also reviewed to assess the target’s obligations to its workforce. This includes employment agreements, collective bargaining agreements, benefit plans, pension arrangements, and records of past or pending employment disputes. The buyer must understand the terms of employment for key personnel, the cost of employee benefits, and any potential liabilities arising from terminations or non-compliance with labour laws.

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In addition, the buyer reviews documentation related to intellectual property, including patent registrations, trademark filings, copyright licenses, other intangible property, and confidentiality agreements. This review ensures that the target owns or has valid rights to use the intellectual property necessary for its operations and that such rights can be transferred or assigned as part of the transaction.

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Environmental reports, regulatory filings, litigation records, insurance policies, and data privacy policies are also commonly reviewed, depending on the nature of the business. Each of these categories may reveal risks that require mitigation through deal structuring or post-closing integration planning.

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The Role of Advisors in Due Diligence

Due diligence is a multidisciplinary effort that requires the coordination of various professionals, each bringing specialized expertise to the process. The buyer’s internal management team plays a central role in assessing the commercial and strategic aspects of the transaction. However, external advisors are indispensable in conducting a thorough and legally sound investigation.

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Legal counsel is typically responsible for coordinating the overall due diligence process. This includes drafting the request list, reviewing legal documents, identifying risks, and advising on the legal implications of the findings. Corporate lawyers often lead the process, supported by specialists in areas such as employment law, real estate, intellectual property, tax, and regulatory compliance. The legal team also plays a key role in drafting and negotiating the purchase agreement and related documents.

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Accountants and financial advisors conduct the financial and tax due diligence. They analyze the target’s financial statements, assess the quality of revenue, evaluate working capital requirements, and identify tax exposures. Their findings are critical to validating the purchase price and structuring the transaction in a tax-efficient manner.

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Other specialists may be engaged as needed. Environmental consultants assess compliance with environmental laws and the presence of any contamination or remediation obligations. IT consultants evaluate the target’s technology infrastructure and cybersecurity practices. Insurance advisors review the adequacy of coverage and identify any gaps or exclusions. Appraisers may be retained to confirm the value of specialized equipment or real estate holdings. In cross-border transactions, local counsel may be retained to advise on jurisdiction-specific legal and regulatory issues.

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Effective communication among the advisory team is essential. Each advisor must understand the scope of their responsibilities, the timeline for completion, and the reporting structure. Regular updates and coordination meetings help ensure that issues are identified early and addressed in a timely manner. The lead legal counsel typically acts as the central point of contact, synthesizing the findings of the various advisors and presenting a cohesive risk assessment to the buyer.

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Part 3: Asset Versus Share Purchase, Tax Considerations, and Financing the Transaction

One of the most consequential decisions to be made is how the transaction will be structured. As the due diligence process unfolds and the buyer gains a clearer understanding of the target business, they may find that one structure provides advantages that outweigh the others. Ultimately, the decision on structure has far-reaching implications for liability, taxation, regulatory compliance, and operational continuity. This part of the article explores the distinctions between these possible structures with a specific focus on asset purchases and share purchases, the tax considerations that influence the decision, and the various methods by which such transactions are typically financed.

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Asset Purchase Versus Share Purchase

In an asset purchase, the buyer acquires specific assets and liabilities of the target business, rather than the business entity itself. This structure allows the buyer to select which assets to acquire—such as equipment, inventory, intellectual property, and customer contracts—and which liabilities to assume. The remaining assets and liabilities remain with the seller, who retains ownership of the legal entity through which the business was operated prior to the transaction.

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By contrast, a share purchase involves the acquisition of the shares of the target company, resulting in a change of ownership at the shareholder level. The legal entity remains intact, along with all of its assets, liabilities, contracts, and obligations. From an operational standpoint, this structure often results in a smoother transition, as the business continues to operate under the same legal identity. However, by acquiring the legal entity the buyer exposes itself to the risk that the legal entity carries with it latent liabilities that went undiscovered in due diligence, as well as the risk that they may be paying for assets owned by the target entity that do not fit the strategic basis for the acquisition. In a share purchase, buyers are unable to specifically select the assets they acquire and liabilities they assume, unless the seller undergoes a reorganization and transfers unwanted assets and liabilities to a different entity prior to completing the transaction.

Each structure offers distinct advantages and disadvantages. Asset purchases are generally favored by buyers who wish to avoid inheriting unknown or contingent liabilities. By carefully defining the scope of the transaction, the buyer can exclude problematic assets or obligations, such as pending litigation, environmental liabilities, or unfunded pension plans. Asset purchases also allow for a step-up in the tax basis of the acquired assets, which can result in future tax savings through increased depreciation deductions.

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However, asset purchases can be more complex to execute. They often require the assignment or novation of individual contracts, leases, and licenses, many of which may contain anti-assignment clauses or require third-party consents. Regulatory approvals may also be needed, particularly in regulated industries. In addition, asset purchases may trigger transfer taxes, sales taxes, or other transaction costs that would not apply in a share purchase.

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Share purchases, on the other hand, are typically simpler from a logistical perspective. Because the legal entity remains unchanged, there is no need to reassign contracts or licenses (though some may require third party consent to the change of control of the legal entity), and the business can continue operating without interruption. This continuity is particularly valuable in businesses with long-term customer relationships, regulatory licenses, or complex supply chains. Share purchases may also be more attractive to sellers, as they allow for a clean exit and may result in more favorable tax treatment.

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Nevertheless, share purchases expose the buyer to all of the target’s liabilities, including those that may not be apparent during due diligence. To mitigate this risk, buyers often negotiate robust representations, warranties, and indemnities in the purchase agreement, and may require a portion of the purchase price to be held in escrow or backed by warranty and indemnity insurance.

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The decision between an asset and share purchase is ultimately driven by a combination of legal, tax, commercial, and practical considerations. It is not uncommon for the structure to evolve during the course of negotiations, particularly if due diligence reveals issues that make one structure more advantageous than the other.

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Tax Considerations

Tax implications are a central factor in structuring and negotiating any business acquisition. Both the buyer and the seller must consider how the transaction will affect their respective tax positions, both at the time of closing and in the future.

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In an asset purchase, the buyer typically benefits from a step-up in the tax basis of the acquired assets to their fair market value. This allows the buyer to claim higher depreciation or amortization deductions, reducing taxable income in future years. However, the seller may face higher taxes, particularly if the assets have appreciated significantly in value. The gain on the sale of assets may be taxed as ordinary income or capital gains, depending on the nature of the assets and the seller’s tax profile.

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Asset purchases may also trigger sales taxes, land transfer taxes, or other transactional levies, depending on the jurisdiction and the types of assets involved. These costs must be factored into the purchase price and may require careful planning to minimize their impact.

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In a share purchase, the buyer acquires the shares of the target company, and the tax attributes of the company—such as net operating losses, tax credits, and depreciation pools—remain intact. The seller typically realizes a capital gain on the sale of shares, which may be taxed at a lower rate than ordinary income. This tax treatment is often more favorable to the seller and may influence their willingness to agree to a share sale.

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However, the buyer does not receive a step-up in the basis of the underlying assets, which may limit future tax deductions for the operating entity. In addition, the buyer assumes responsibility for any unpaid taxes or tax liabilities of the target company, including those arising from prior periods. Tax due diligence is therefore critical to identify any exposures and to negotiate appropriate indemnities or purchase price adjustments.

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Cross-border transactions introduce additional complexity, including issues related to withholding taxes, transfer pricing, currency exchange considerations, and the application of tax treaties. Buyers must also consider the impact of the transaction on the consolidated tax position of their corporate group, particularly if the target will be integrated into an existing structure.

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To navigate these complexities, buyers typically engage tax advisors early in the process to model different transaction structures, assess the tax implications, and assist in negotiating tax-related provisions in the purchase agreement. These provisions may include representations and warranties regarding tax compliance, covenants to file certain elections, and indemnities for pre-closing tax liabilities.

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Financing the Transaction

Financing is another critical component of any acquisition. Buyers must determine how they will fund the purchase price and associated transaction costs, and whether external financing will be required. The choice of financing structure can influence the timing, risk profile, and overall feasibility of the transaction.

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Many acquisitions are financed through a combination of equity and debt. Equity financing may come from the buyer’s internal resources, private investors, or institutional partners. Debt financing may be obtained from commercial banks, private lenders, or capital markets. The terms of the financing—such as interest rates, covenants, and repayment schedules—must be carefully negotiated to align with the buyer’s cash flow and strategic objectives.

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In leveraged buyouts, the buyer uses a significant amount of borrowed funds to finance the acquisition, with the target company’s assets often serving as collateral. While this approach can enhance returns on equity, it also increases financial risk and may impose operational constraints due to debt service obligations.

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Buyers may also explore alternative financing options, such as seller financing, earn-outs, or contingent payments. In seller financing, the seller agrees to accept a portion of the purchase price in the form of a promissory note or deferred payment. This arrangement can bridge valuation gaps and align the interests of the parties. Earn-outs tie a portion of the purchase price to the future performance of the business, providing incentives for continued success but also introducing potential for post-closing disputes.

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Regardless of the financing method, buyers must ensure that the necessary funds will be available at closing and that the financing arrangements are consistent with the terms of the purchase agreement. Lenders may require due diligence reports, legal opinions, or other documentation as conditions precedent to funding. Coordination between the buyer’s legal, financial, and lending teams is essential to ensure a smooth and timely closing.

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Part 4: Documenting the Transaction, Disclosure Schedules, and Closing

Once a buyer has completed its due diligence and the parties to a transaction have agreed on the structure and financing related to the transaction, attention turns to the documentation of the deal. This phase is critical, as it translates the commercial understanding between the buyer and the seller into legally binding obligations. The quality and precision of the transaction documents can significantly influence the success of the acquisition, both at closing and in the post-closing period. This part of the article explores the key documents involved in a business acquisition, the role of disclosure schedules, and the procedures surrounding closing.

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Documenting the Transaction

The central document in any acquisition is the purchase agreement. Depending on the structure of the transaction, this will be either a share purchase agreement (SPA), an asset purchase agreement (APA), or take some other form where a statutory transaction process such an amalgamation or plan of arrangement is relied upon (through such processes fall outside the scope of this article). While all types of agreements serve the same fundamental purpose—transferring ownership of a business—they differ in form and content to reflect the nature of what is being sold.

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An SPA governs the sale of the shares of the target company. It typically includes provisions addressing the purchase price, representations and warranties, covenants, conditions to closing, indemnification, and post-closing obligations. Because the buyer is acquiring the entire legal entity, the SPA must address all aspects of the company’s operations, liabilities, and governance both historically, in the period between the execution of the agreement and the completion of the sale, and often during a post closing period that may range from months to several years following completion.

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An APA, by contrast, governs the sale of specific assets and liabilities. It must clearly identify the assets being transferred—such as equipment, inventory, contracts, intellectual property, and goodwill—as well as any excluded assets. Similarly, the APA must specify which liabilities the buyer is assuming and which remain with the seller. This level of specificity requires careful drafting and coordination with the business and legal teams to ensure that nothing is inadvertently omitted or included.

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In both types of agreements, representations and warranties play a central role. These are statements made by the seller (and sometimes the buyer) regarding the condition of the business, its assets, liabilities, operations, and compliance with laws. Representations and warranties serve two primary functions: they provide the buyer with assurance about the state of the business, and they form the basis for post-closing remedies if the statements prove to be false or misleading.

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The scope and detail of the representations and warranties are often the subject of intense negotiation. Buyers typically seek broad and detailed representations to uncover potential risks and preserve their rights to indemnification should those risks materialize into liability, loss, or other expenses the buyer did not intend to assume. Sellers, on the other hand, aim to limit their exposure by narrowing the scope of the representations, qualifying them with knowledge or materiality thresholds, and capping their liability.

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Covenants are another important component of the purchase agreement. These are promises by the parties to take or refrain from certain actions, either before or after closing. Pre-closing covenants may include obligations to operate the business in the ordinary course, obtain third-party consents, or refrain from soliciting competing offers. Post-closing covenants may address matters such as non-competition, confidentiality, employee retention, or the transition of customer relationships.

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Conditions to closing are provisions that specify the circumstances under which the parties are obligated to complete the transaction. These may include the receipt of regulatory approvals, the absence of material adverse changes, the accuracy of representations and warranties, and the performance of covenants. If any of the conditions are not satisfied or waived, the parties may have the right to terminate the agreement without liability.

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The Role of Disclosure Schedules

Disclosure schedules are an integral part of the purchase agreement. They serve as the seller’s opportunity to qualify or limit the representations and warranties made in the agreement by disclosing exceptions, qualifications, or additional information. For example, if the seller represents that there are no pending lawsuits, the disclosure schedule may list any existing litigation that would otherwise render the representation inaccurate.

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The preparation of disclosure schedules is a meticulous and time-consuming process. It requires the seller to review each representation and warranty and determine whether any disclosures are necessary. The schedules must be accurate, complete, and consistent with the information provided during due diligence. Inaccurate or incomplete disclosures can lead to post-closing disputes and potential liability for the seller.

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From the buyer’s perspective, the disclosure schedules are a critical tool for verifying the accuracy of the seller’s representations and for identifying any issues that may require further investigation or negotiation. The buyer’s legal team must carefully review the schedules to ensure that all material matters have been disclosed and that there are no surprises at closing.

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In some cases, the parties may agree to update the disclosure schedules between signing and closing to reflect new developments. This approach allows for flexibility but also introduces the risk that material changes could affect the buyer’s willingness to proceed. To address this, the agreement may include provisions allowing the buyer to terminate the transaction or seek remedies if the updated disclosures reveal significant issues.

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Closing the Transaction

The closing of a business acquisition is the culmination of weeks or months of negotiation, diligence, and documentation. It is the point at which ownership of the business is formally transferred, and the parties fulfill their respective obligations under the purchase agreement.

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Closing may occur simultaneously with the signing of the purchase agreement (a “sign-and-close” transaction) or at a later date (a “sign-and-close-later” transaction). In the latter case, the period between signing and closing is used to satisfy conditions precedent, obtain consents, and prepare for the transition.

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The closing process involves the execution and exchange of various documents, the delivery of funds, and the transfer of ownership interests. The specific documents required at closing depend on the structure of the transaction and the terms of the agreement, but typically include:

1. A bill of sale or share transfer documentation
2. Assignment and assumption of contracts, agreements, licenses, permits, and other business assets
3. Applications to third parties for their consent to the assignment of contracts, agreements, licenses, permits, and other business assets, or to the change of the control of the target entity, as may be necessary
4. Resolutions of the board and shareholders approving the transaction
5. Officer’s certificates confirming the business is in substantial compliance with the purchase agreement at the closing date
6. Director and officer resignations, as applicable
7. Legal opinions
8. Escrow agreements
9. Non-competition and confidentiality agreements
10. Transition services agreements
11. Updated disclosure schedules
12. Closing certificates confirming the satisfaction of conditions

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In addition to these documents, the parties may be required to make regulatory filings, pay transfer taxes, record changes in ownership with government authorities, or execute other transaction specific documents necessitated by the terms of the purchase agreement. Coordination among legal, financial, and administrative teams is essential to ensure that all closing deliverables are prepared, executed, and delivered in accordance with the agreement.

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Post-closing, the parties may continue to interact in various ways. The seller may provide transition services, assist with customer or employee communications, or cooperate in the transfer of licenses and permits. The buyer may monitor the performance of the business, pursue indemnification claims, or integrate the acquired operations into its existing structure.

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The success of the closing—and the transaction as a whole—depends on thorough preparation, clear communication, and careful execution. A well-managed closing process not only ensures legal compliance but also sets the tone for a smooth and productive post-acquisition relationship.

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Part 5: Ancillary Agreements, Post-Closing Considerations, and Final Reflections

The successful acquisition of an operating business does not end at the closing table. In fact, the closing marks the beginning of a new phase in the transaction lifecycle—one that involves integration, compliance, and the fulfillment of ongoing obligations. This final part of the article explores the ancillary agreements that often accompany a business acquisition, the typical post-closing steps that buyers must undertake, and some concluding reflections on best practices for navigating the acquisition process.

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Ancillary Agreements and Supporting Documentation

In addition to the primary purchase agreement, most acquisitions involve a suite of ancillary agreements that address specific aspects of the transaction or the post-closing relationship between the parties. These documents are essential to ensuring a smooth transition and to protecting the interests of both buyer and seller.

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One common ancillary agreement is the non-competition and non-solicitation agreement. In this document, the seller agrees not to compete with the business or solicit its customers or employees for a specified period following the sale. These covenants are particularly important when the seller is an individual or a closely held company with deep industry ties. The scope and duration of such restrictions must be reasonable to be enforceable, and they are often subject to negotiation.

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Another frequently used agreement is the transition services agreement (TSA). This document outlines the services that the seller will provide to the buyer for a limited time after closing, such as IT support, accounting, or administrative assistance. TSAs are especially useful when the buyer is acquiring a business that was previously integrated into a larger corporate group and needs time to establish standalone operations.

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Escrow agreements are also common, particularly in transactions involving indemnification obligations. Under an escrow arrangement, a portion of the purchase price is held by a third-party escrow agent for a defined period to cover potential claims by the buyer. The terms of the escrow—including the amount, duration, and release conditions—are negotiated as part of the purchase agreement.

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Other ancillary documents may include employment, consulting, or contractor agreements for key personnel, intellectual property assignments, lease assignments, supplier or customer consents, and regulatory filings. Each of these documents plays a role in facilitating the transfer of the business and ensuring continuity of operations.

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Post-Closing Considerations

The period following closing is critical to the long-term success of the acquisition. While the legal transfer of ownership may be complete, the buyer must now turn its attention to integrating the acquired business, fulfilling post-closing obligations, and monitoring for any issues that may arise.

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One of the first tasks post-closing is to notify stakeholders of the change in ownership. This includes employees, customers, suppliers, regulators, and financial institutions. Clear and timely communication helps maintain trust and continuity, and may be required under certain contracts or regulatory regimes.

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The buyer must also update corporate records and registrations to reflect the new ownership. This may involve filing documents with corporate registries, tax authorities, and licensing bodies. In asset purchases, title to real property, vehicles, and intellectual property must be formally transferred and recorded.

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Integration planning is another key post-closing activity. The buyer must align the acquired business with its existing operations, systems, and culture. This may involve consolidating IT platforms, harmonizing HR policies, renegotiating supplier contracts, and aligning branding and marketing strategies. Effective integration requires coordination across departments and clear leadership from the buyer’s management team.

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Buyers should also monitor compliance with post-closing covenants and deadlines. These may include obligations to make contingent payments (such as earn-outs), file tax elections, or maintain certain operational standards. Failure to comply with these obligations can result in legal disputes or financial penalties.

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Finally, the buyer should remain vigilant for any breaches of representations and warranties or other issues that may give rise to indemnification claims. This includes monitoring for undisclosed liabilities, customer disputes, or regulatory investigations. Timely identification and documentation of such issues is essential to preserving the buyer’s rights under the purchase agreement.

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Final Reflections

Acquiring an operating business is a multifaceted process that requires careful planning, rigorous analysis, and disciplined execution. From the initial strategic assessment to the final post-closing integration, each phase of the transaction presents unique challenges and opportunities.

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The key to a successful acquisition lies in preparation and collaboration. Buyers must assemble a skilled team of legal, financial, and operational advisors, engage in thorough due diligence, and negotiate clear and comprehensive documentation. They must also remain flexible and responsive as new information emerges and circumstances evolve.

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While no transaction is without risk, a well-executed acquisition can create significant value, accelerate growth, and strengthen competitive positioning. By approaching the process with diligence, transparency, and strategic intent, buyers can maximize the benefits of their investment and lay the foundation for long-term success.

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Acquisition Checklist

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1. Due Diligence Checklist

The following checklist consists of a non-comprehensive example of types of documents and information a buyer may wish to review with respect to its target business and any subsidiary companies owned by the target business, or assets being acquired in the transaction.

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Corporate Matters

• Organizational chart and list of subsidiaries
• Shareholder agreements and capitalization tables
• Corporate charter documents
• Board and shareholder meeting minutes
• Documentation evidencing all historical corporate transactions and reorganizations
• Details of all agreements that may affect the ownership or transfer of securities

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Financial Information

• Audited and unaudited financial statements (3–5 years)
• Bookkeeping ledger and history of financial transactions
• Communications and reports to and from auditor, stakeholders regarding finances
• Budgets, forecasts, management reports, strategic and operational plans
• Tax returns and assessments
• Elections, planning, rulings, analysis, opinions of accountants/auditors
• Details of outstanding debts and liabilities
• Details of accounts receivable, work in progress, and other current assets
• Sales reports, customer information, and supplier information
• Terms of all existing financing arrangements with lenders
• Reports on any breaches of or non-compliance with financing arrangements
• Details of liens, encumbrances, or other security affecting the target’s assets or the assets of the target’s subsidiaries
• Details of loans or guarantees granted by the company and subsidiaries
• Details of banks, bank accounts, authorized signatories, and other banking information of the target

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Legal and Regulatory

• Material contracts and agreements including service, supplier, customer, franchise, lease, license, regulatory, governmental, transactional (buying and selling assets, shares of subsidiaries etc.), settlement, and restrictive covenant agreements
• Litigation history and pending claims
• Licenses, permits, and regulatory filings
• Environmental compliance documents
• All amendments, renegotiations, or terminations of the above
• Summary of historical and current breaches or non-compliance with above
• Third party approvals and regulatory consents that may affect the transaction
• Litigation proceedings, threatened or actual, and all materials, documents, and information pertaining to same
• Regulatory proceedings, threatened or actual, and all materials, documents, and information pertaining to same

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Employment and HR

• List of employees summarizing key information including, age, salary, term of service, and job title with summary of key responsibilities
• Employee contracts and benefit plans (pension, health, severance agreements etc.)
• Collective bargaining agreements
• Employment policies and manuals
• Pending or historical employment disputes
• List of contractors and consultants with key terms of relationship summarized
• Contractor and consultant agreements
• Copies of all incentive programs (option plans, profit sharing plans, bonus plans etc.)
• Summary of compliance issues, by both employer and employee
• Current or historical employment related claims, actual or threatened
• Historical and current WorkSafe and Occupational Health and Safety reports, citations, incidents, claims, settlements, and the outcomes thereof

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Intellectual Property

• IP ownership and registration documents

• Licensing agreements

• Confidentiality and invention assignment agreements

• List of IP assets, such as trade secrets, Patents, trademarks, domain names/websites, priority systems or procedures

• Copies of all third-party agreements regarding use of intellectual property

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IT and Data Privacy

• IT infrastructure and data storage overview and summary
• Cybersecurity policies and incident history
• Data protection compliance (e.g., PIPA, PIPEDA, GDPR)
• Contracts, agreements and policies related to IT and data privacy management
• Summaries of breaches or non-compliance, historical and current, with data privacy obligations

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Physical Assets and Real Estate

• Confirm assets subject to registration and real estate are registered in the name of the target or the appropriate subsidiary
• Physical inspection to ensure assets and real estate are properly maintained and in good condition
• Confirm actual physical assets are congruent with financial information provided
• Copies of all lease agreements related to the physical assets and real estate being acquired
• Copies of appraisals and inspections, operating manuals, and drawings and specifications pertaining to the assets or real estate
• Environmental reports, studies, audits, assessments, and engagements
• Disclosures of non-compliance with Environmental or other regulatory laws regarding physical assets and real estate, as well as any leases or security agreements related thereto
• Copies of insurance policies and warranties applicable to assets
• Company policy manuals and procedures related to the above
• Contracts or agreements with third parties related to the above

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2. Share Purchase Procedure Checklist

Pre-Signing of Purchase Agreement

• Non-Disclosure Agreement
• Exclusivity Agreement
• Negotiate and sign letter of intent (LOI)
• Conduct due diligence (see above checklist)
• Draft share purchase agreement (SPA) in accordance with principal LOI terms
• Prepare disclosure schedules to reflect terms of SPA

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Pre-Closing

• Prepare closing documents and ancillary agreements necessary to complete transactions in accordance with terms of SPA
• Obtain regulatory and third-party consents
• Finalize financing arrangements
• Prepared updated corporate records to reflect completion of the transaction

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Closing

• Execute SPA and ancillary agreements
• Execute transfer documentation
• Pay purchase price and carry out covenants per the SPA
• Deliver executed closing certificates, ancillary agreements, and transfer documents

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3. Asset Purchase Procedure Checklist

Pre-Signing of Purchase Agreement

• Non-Disclosure Agreement
• Exclusivity Agreement
• Identify assets and liabilities to be transferred
• Conduct due diligence
• Draft asset purchase agreement (APA)
• Prepare schedules of assets and liabilities, also known as disclosure schedules

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Pre-Closing

• Obtain consents for contract assignments
• Address transfer taxes and registration expenses
• Prepare bills of sale, assignment agreements, and other transfer documentation as necessary
• Finalize ancillary agreements necessary to comply with terms of the APA

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Closing

• Execute APA, ancillary agreements and transfer documents
• Pay purchase price in accordance with the APA
• Deliver executed closing certificates, ancillary agreements, and transfer documents
• Transfer title to assets, remit transfer and registration taxes as applicable

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4. Typical Closing Document Checklist

• Signed purchase agreement (SPA or APA) with disclosure schedules attached
• Resolutions of buyer and seller authorizing the transaction
• Officer’s certificates confirming representations and warranties
• Resignations of directors and officers as applicable
• Legal opinions from counsel
• Non-competition and confidentiality agreements
• Regulatory and third party, notices, consents, and approvals
• Other ancillary agreements necessitated by the terms of the purchase agreement
• transfer documentation
• purchase price payment
• Transfer and registration tax remittance

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5. Post-Closing Steps Checklist

• Notify employees, customers, and suppliers
• Update corporate records and registers
• Register transfers and confirm regulatory records are updated
• File regulatory and tax notifications
• Integrate business systems and operations
• Monitor compliance with post-closing covenants contained in purchase agreement
• Resolve any indemnification claims
• Conduct post-closing audit or review
• Finalize earn-out or contingent payment calculations as dictated by payment provisions of purchase agreement