Business Broker (Ontario)

A business broker acts as the seller's sales agent for a privately owned business. Typical work includes:

• Estimating an asking price, usually as a multiple of seller's discretionary earnings.
• Preparing an anonymous teaser and a confidential information memorandum.
• Marketing the business through listing sites and the broker's own contacts.
• Requiring each prospective buyer to sign a non-disclosure agreement before receiving financial details.
• Screening buyers for experience and financing.
• Negotiating price and key terms through to a signed letter of intent.
• Keeping the process moving through due diligence, financing and closing.

A broker's price opinion is a marketing estimate, not an independent business valuation report.

Business brokers focus on owner-operated businesses, often sold to individual buyers. M&A advisers, sometimes called sell-side advisers or boutique investment banks, work on larger transactions, usually run a structured process with several bidders and are commonly paid a retainer plus a success fee. The labels overlap. The legal questions below turn on what the intermediary actually does, not on what it calls itself.

Generally, yes. Ontario regulates business brokerage under the same statute as residential real estate. The Trust in Real Estate Services Act, 2002 (TRESA), which was called the Real Estate and Business Brokers Act, 2002 until December 1, 2023, defines real estate to include businesses, whether with or without premises, and the fixtures, stock-in-trade and goods connected with operating a business. A business is defined as an undertaking carried on for gain or profit, including any interest in that undertaking.

Section 4 of TRESA prohibits trading in real estate without registration, and a trade includes listing, advertising and negotiating in furtherance of a sale. A person who markets and negotiates the sale of businesses for others, for compensation, therefore needs to be registered as a brokerage, broker or salesperson with RECO, the regulator that administers the Act, unless an exemption applies. The section 5 exemptions include:

• A lawyer providing legal services, where the trade is itself a legal service or is incidental to and directly arising out of one.
• A person registered under the Securities Act, for trades made as part of that person's business in connection with a trade in securities.
• A person dealing on their own account with their own interest, subject to conditions.

The consequence of not registering is practical as well as regulatory. Section 9 provides that no action may be brought for remuneration for services in connection with a trade in real estate unless the person was registered or exempt when the services were rendered, and the court may stay such an action.

A pure sale of shares is less clear-cut. Shares are securities, but the definition of business reaches any interest in an undertaking, and the section 9 bar covers services in connection with a trade. An unregistered adviser who relies on a share structure to stay outside the Act is taking a real risk, and a share sale can also raise questions under Ontario securities law. Before signing, a seller should search RECO's online agent and brokerage search for both the brokerage and the individual broker.

Most business brokers are paid a success fee on closing, sometimes with an upfront marketing or work fee. TRESA sets limits: remuneration to a brokerage must be an agreed amount, a percentage of the sale price, or a combination; a percentage may step down as the price rises; and no registrant may be paid on the difference between the listed price and the actual sale price. Unless the seller agrees in writing, a brokerage cannot claim remuneration from the seller if it knows the business is covered by an unexpired listing agreement with another brokerage.

Within those limits, the listing agreement is a negotiated contract. Points to review before signing:

• Term and exclusivity: how long the listing runs, and whether the broker is paid if the owner finds the buyer.
• Holdover or tail: whether commission is owed on a sale after the listing ends to a buyer the broker introduced, for how long, and whether the broker must deliver a list of those buyers.
• What counts as a sale: asset sales, share sales, a sale of part of the business, an amalgamation, or a sale to an employee or partner.
• Deferred payments: whether commission on a vendor take-back or earn-out is due at closing or only as the seller is actually paid.
• Real estate: whether land or a building sold with the business carries a separate commission.
• Minimums, expenses and termination: any minimum fee, expense reimbursement and how either side can end the agreement.

The regulations add a disclosure duty. Under section 21 of O. Reg. 567/05, a registrant who negotiates the purchase of a business on the seller's behalf must give the buyer, before a binding agreement is signed, statements signed for the seller covering the profit and loss for the preceding 12 months, the assets and liabilities of the business, and the assets excluded from the sale, with an alternative sworn-statement procedure for the first two. If the excluded-assets list is not provided and the agreement is silent on an item, that item is deemed included.

A broker brings buyers and momentum; a lawyer protects the seller's legal position. The roles complement each other:

A broker is usually paid only if a deal closes, which shapes its incentives. Under section 22 of O. Reg. 567/05, a brokerage may represent both seller and buyer in the same trade only after written disclosure of how its duties, services and remuneration change, and written consent from each client; it must then treat both impartially. Vendor financing, indemnities and post-closing restrictions are where sellers most need independent legal advice.

Lamba Law's business sale services and mergers and acquisitions practice work alongside brokers on broker-led sales, and the free sale readiness checker helps owners prepare before they list.

Rajesh Patel owns a precision machining company in Mississauga. A broker proposes a nine-month exclusive listing at an 8% commission with a $60,000 minimum, a 12-month holdover on any buyer the broker introduces, and commission on the full price payable at closing.

Before signing, Rajesh's lawyer confirms on RECO's online agent and brokerage search that the brokerage and the individual broker are registered. The lawyer then negotiates three changes: the holdover applies only to buyers named on a written list delivered within 10 days after the listing ends; commission on any vendor take-back is payable proportionately as Rajesh is actually paid; and the assignment of the premises lease carries no separate fee.

A buyer agrees to pay $1.6 million: $1.2 million at closing and $400,000 by a vendor take-back note over three years. The broker receives $96,000 at closing and is entitled to the remaining $32,000 only as the note is paid. In year three the buyer refinances and repays the note in full, and the broker's final instalment comes out of that payment. Had the buyer defaulted, Rajesh would not have owed commission on money he never received.