Plain-language definitions of the Canadian business law terms that come up most often when you own, buy, sell, or pass on a company — from earn-outs and shotgun clauses to the oppression remedy, estate freezes, Employee Ownership Trusts, and the lifetime capital gains exemption. Each term links to a fuller guide.
Selling & buying a business
- Asset sale
- A sale in which the buyer purchases specific assets of a business (equipment, inventory, contracts, goodwill) rather than the shares of the company. The seller keeps the corporation and its history. Read more →
- Share sale
- A sale in which the buyer purchases the shares of the company that owns the business, acquiring the corporation as a whole, including its liabilities. Sellers often prefer share sales for the capital gains treatment. Read more →
- Earn-out
- A deal structure where part of the purchase price is paid after closing, contingent on the business hitting agreed performance targets. It bridges a gap between what the buyer will pay now and what the seller believes the business is worth. Read more →
- Letter of intent (LOI)
- A mostly non-binding document setting out the key terms of a proposed deal (price, structure, timeline) before the definitive agreement. Though it feels like a formality, the LOI is where a business sale is effectively decided. Read more →
- Vendor take-back (VTB)
- Seller financing: the seller is paid part of the price up front and the balance over time under a promissory note with interest, effectively acting as the lender. It should always be secured. Read more →
- Due diligence
- The buyer's investigation of a business before closing, reviewing contracts, financials, employees, litigation, and compliance to confirm what they are buying and to price risk. Read more →
- Management buyout (MBO)
- A sale of the business to its existing management team, usually funded by a mix of bank financing and a vendor take-back because managers rarely have the full price in cash. Read more →
- Minority discount
- A reduction applied when valuing a minority (non-controlling) interest in a company, reflecting that the holder cannot control decisions or force a sale or dividend. A 30% stake is usually worth less than 30% of the whole. Read more →
Shareholders & disputes
- Shareholder agreement
- A contract among a company's owners governing control, decision-making, dividends, share transfers, and how owners can exit. It is the single most important document when more than one person owns a business. Read more →
- Shotgun (buy-sell) clause
- A shareholder-agreement mechanism where one owner names a price and the other must either sell their shares at that price or buy the initiator's shares at it. It forces a clean resolution to a deadlock. Read more →
- Drag-along and tag-along rights
- Drag-along rights let a majority force minority owners to join a sale; tag-along rights let minority owners join a sale on the same terms as the majority. Both protect against being stranded when the company is sold. Read more →
- Deadlock
- A situation where a company's decision-making is frozen because owners with equal or blocking votes cannot agree. Common in fifty-fifty companies, it can often be resolved without court. Read more →
- Oppression remedy
- A broad statutory remedy allowing a court to intervene when a company is run in a way that is oppressive or unfairly prejudicial to a shareholder's reasonable expectations. A court can order a buyout at a value it sets. Read more →
Estate, succession & legacy
- Estate freeze
- A reorganization that locks in the current value of a company as fixed-value preferred shares held by the owner, while new growth shares pass to the next generation or a family trust, moving future growth and its tax to them. Read more →
- Dual wills (secondary will)
- A pair of wills used in Ontario: a primary will for assets requiring probate and a secondary will for assets that do not, such as private-company shares, keeping those shares out of probate and saving Estate Administration Tax. Read more →
- Estate Administration Tax (probate tax)
- Ontario's tax on the value of assets governed by a will that is probated: nil on the first $50,000 and about 1.5% ($15 per $1,000) above that. Private-company shares can often avoid it with a secondary will. Read more →
- Lifetime capital gains exemption (LCGE)
- A federal exemption that shelters capital gains on qualifying small business corporation (QSBC) shares, over $1.25 million per person, on a sale. A key reason share sales are tax-efficient for owners. Read more →
- Capital gains reserve
- A rule allowing a seller paid over several years to spread the capital gain, and the tax on it, over up to five years (ten for a qualifying sale of small-business shares to a child), rather than all in the year of sale. Read more →
- Employee Ownership Trust (EOT)
- A trust structure that lets an owner sell the business to their employees, with a permanent capital gains exemption of up to $10 million on a qualifying sale in Canada. Read more →
- Intergenerational business transfer
- A genuine sale of a business to a corporation controlled by the owner's child, which, under rules effective in 2024, can be taxed as a capital gain with the exemption rather than as a dividend, subject to strict conditions. Read more →
- Continuing power of attorney for property
- An Ontario document authorizing someone to manage your financial and business affairs if you become incapable. Without one, a court-appointed guardianship may be required, which is slow and costly. Read more →
Contracts, tech & cross-border
- Non-compete clause
- A restrictive covenant limiting where and for whom someone can work or compete after leaving. In Ontario, non-competes in ordinary employment contracts have been largely banned since 2021, with narrow exceptions. Read more →
- Limitation of liability clause
- A contract term capping or excluding a party's liability. Canadian courts assess these under the Tercon framework, and clauses drafted for U.S. law often do not hold up as assumed. Read more →
- PIPEDA
- Canada's federal private-sector privacy law governing how organizations collect, use, and disclose personal information. It applies to many U.S. companies selling to Canadians, alongside provincial statutes like Quebec's Law 25. Read more →
- Permanent establishment
- A tax concept describing enough business presence in a country to create a taxable footprint there. U.S. companies can create one in Canada without realizing it, triggering Canadian tax obligations. Read more →
- Extra-provincial registration
- Registering a corporation to carry on business in a province other than the one where it was incorporated. A company operating across provinces generally must register in each. Read more →
- Mediation vs. arbitration
- In mediation, a neutral helps the parties reach their own settlement and cannot impose one; in arbitration, a neutral acts as a private judge and issues a binding decision. Mediation keeps control with the parties. Read more →
Financing & securities
- Accredited investor
- An individual or entity meeting income or asset thresholds that allow them to invest in private securities without a prospectus. The accredited investor exemption is how most private raises happen in Canada. Read more →
- Private placement (prospectus exemption)
- A sale of securities to investors without a public prospectus, relying on an exemption such as the accredited investor or private issuer exemption. Common for start-ups and private companies raising capital. Read more →
- Professional corporation
- A corporation through which a regulated professional (physician, dentist, lawyer) practices, offering tax and planning advantages while remaining subject to the profession's rules. Read more →
KS
Koby is a business lawyer and the principal of Smutylo Law+ in Ottawa. Called to the Bar of Ontario in 2001, he has over two decades of experience in corporate, commercial, securities, and technology law, acting for business owners across Canada and for U.S. companies operating in Canada. He is also a trained mediator. More about Koby →
Legal information, not legal advice. Definitions are general and simplified. For advice on your own situation,
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