Buying a Restaurant | 8 minute read

Legal Considerations When Buying a Restaurant in Canada

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Legal Considerations When Buying a Restaurant in Canada

Overview of Legal Considerations

Understanding the legalities of buying an existing restaurant simply makes sense: it protects you from any legal pitfalls that may come down the line, such as a lapsed trademark, a lien due to unpaid taxes, or a personal lawsuit due to your company’s legal structure.

Performing your due diligence on permits, property records, and tax returns enables you to fully understand the restaurant’s history and mitigate issues related to the sale before they become a serious hindrance to your operations.

Working with Lawyers in the Restaurant Buying Process

New restaurant

Thankfully, you don’t need to become a legal scholar yourself to conduct your restaurant business sale by the book: commercial lawyers are a vital resource for a newly-minded small business owner. They will be able to assist you in finding records, reviewing the purchase agreement for any issues, and filing the necessary paperwork to legitimately own your new restaurant.

When finding a lawyer, you should seek legal counsel that has experience in Canadian restaurant acquisitions. The first step is to find a commercial lawyer, then narrow your search by their specialty by researching their site and reviewing previous clients’ reviews.

Different Types of Business Ownership in Canada

There are several different types of business ownership in Canada, and each comes with its own drawbacks and benefits. We’ll take a look at each of these, listing the pros and cons, then discussing when they may be suitable.

Sole Proprietorship

This is for those who own an unincorporated business by themselves. You will file personal income tax returns for business operations rather than under the business name itself.

Pros of sole proprietorship:

  • You only need to file personal income taxes and can keep all the profits.
  • You won’t need a business checking account.
  • The establishment is easier, as is dissolving them.

Cons of a sole proprietorship:

  • You have little liability protection, so if there’s a lawsuit, your personal assets can be seized
  • You may find it more difficult to secure funding.

This business form is a good option for those with a very small business in the food service industry, like a food truck or a one-person catering company, because you’ll have less paperwork to file and can easily leave the business at any time.

Sole proprietorship


Here, you’re sharing profits and legal obligations with another owner. There are two forms this can take: a general partnership and a limited partnership. However, the pros and cons are quite the same.

Pros include sharing labor and resources, which can help you have a better work-life balance. On the other hand, disagreements are quite common amongst business partners, and you may find selling the company more difficult because you have to either buy out the other party or get to an agreement.

General Partnership

In a general partnership, everything is shared equally, including debts and liabilities. Profits are shared and will be outlined in a legal partnership agreement.

Limited Partnership

With this model, one partner is a general partner with full liability, while the other one is liable only for the amount they invest and do not make day-to-day management decisions. This can be helpful if you want to manage on your own but need further funding, but it can also cause trouble if the limited partner makes a bad financial decision.


There are several different forms that a corporation could take in Canada for tax purposes; these differ from American corporate structures, so it’s important that you take a look at the Canadian government’s corporation types in order to fully understand which one would best suit your company. Here’s a quick summary of the different types:

Canadian-Controlled Private Corporation (CCPC): These corporations must be controlled entirely by Canadian citizens or residents.

Other Private Corporation: This is for companies that are not listed on the stock exchange, and they may have non-residents in control.

Public Corporation: These companies are listed on the Canadian stock exchange, and no citizenship stipulations apply.

Corporation Controlled by a Public Corporation: In the restaurant business, this typically refers to franchises, who themselves are not on the stock market but are part of companies that may be.

Other Corporation: This is a catch-all category for companies that do not fit into other categories.

Corporations may have a high tax rate, but they also provide better protection of your assets and make it easier to secure grants or other funding. However, there are fewer deductions you can make for business expenses; plus, you’ll not only be taxed on your own earnings but also the earnings of the company.


Legal Due Diligence in Restaurant Purchase

Performing due diligence is an essential component of evaluating a potential restaurant purchase, and it includes a variety of different elements, which we’ll briefly touch on here.

Existing Contracts: Examine the business’s lease, supplier contracts, and employment agreements to ensure the terms are favorable and can be renegotiated with the landlord, vendor, or employees if necessary.

Licenses and Permits: Licenses should all be valid, up-to-date, and transferrable, including liquor licenses and health permits. If you’re running a bar that has a lottery machine, be sure you also have a gaming license from the gaming commission.

Intellectual Property: Any trademarks, branding, and proprietary recipe or process should be legally transferred to you by the previous owner. You should also receive legal ownership of any website or social media.

Liabilities and Pending Litigations: If there are any pending lawsuits, these may ultimately become your responsibility once the business is sold to you unless they were filed against the seller themselves.

Employee Rights and Transitions: When it comes to employees for small businesses, you’ll want to ensure that you provide them with good benefits and protect their legal rights. You should have a full understanding of what the employees expect both legally and informally, such as how much they are paid and what perks they expect.

Environmental and Zoning Laws: Your new restaurant should be properly zoned to function as a business, and it should meet all building codes, health and safety requirements, and sanitation standards.

Liquor license

Structuring the Purchase Agreement

A clear and comprehensive purchase agreement is an essential step to truly becoming a restaurant owner, so it’s important that you review it carefully before you sign anything. Most businesses rely on a commercial lawyer for contract signings.

Any contract should explain all the parties involved, including third parties, as well as a business description, sales price, the costs involved in the sale, liabilities the buyer is taking on, the transfer of the business to the new restaurant owner, and any contingencies. Some of these include that the buyer has the right to examine all financials or that the seller can’t operate a similar business in the service area.

The agreement should include an asset sale with detailed information on what will be transferred over to you in terms of equipment. This will determine the fair market value, which is made up of accounts receivable, inventory, land, and the building if it is owned by the company. If the owner is not going to sell you specific equipment, this should be listed as well.


Tax Considerations and Implications

You’ll be beholden to certain taxes when you sign the purchase agreement, which you must be aware of ahead of time.

Sales taxes: Any purchase, no matter how big or small, will have some form of sales tax included. You may be able to sign an agreement with the vendor for no sales tax, but this can only occur if it’s a registered business.

Property Taxes: You will have to pay a provincial rate when purchasing any property, which varies depending on your province and the amount of the sale.

The kinds of taxes you’ll need to pay will depend on the type of business ownership you’ve chosen. If you are a sole proprietor, you will pay income tax as part of your own returns, but you can also count the assets as a business expense to receive deductions. You also will need to write them off over a period of several years, called depreciation.

It’s incredibly helpful to work with a corporate accountant when understanding your obligations related to a business purchase agreement, as they will understand the nuances of Canadian business purchases.


Post-Purchase Legalities

Once you’re officially operating your restaurant, you’ll have some other considerations as well, such as changing the restaurant name or structure. If you’re changing the business name, a new trademark will need to be filed; for a change in structure, you have to undertake a change of legal status by calling the Canadian Revenue Agency.

Restaurants require a number of different licenses, so you’ll have to have these transferred to you; if any have expired, or you want to add new services, you need to obtain these licenses.

For example, if the existing restaurant did not serve alcohol, but you would like to add this service, you will need to apply and obtain a liquor license on your own, which can be done online at your province’s government site.

Any renovations you want to do to the property might require a permit, such as if you’re adding more dining space.

Lastly, you might need to renegotiate employee contracts, such as changing salary employees to hourly employees or changing vendor contracts. Be sure to assess these issues carefully before making any changes.



Legal considerations are a non-negotiable priority when it comes to buying a business, including the structure of your business, due diligence, a solid purchase agreement, taxes, and post-purchase legalities. To ensure a seamless and advantageous transaction, do your research, rely on a competent lawyer, and double-check everything before putting your signature on that all-important contract.

References and Further Reading

Transfer Ownership:” The Canadian Intellectual Property Office explains how to transfer ownership of an existing trademark; if you need to file a new trademark application, you can learn about it at “File a New or Amended Trademark or Certification Mark Application.”

Buying an Existing Business:” The Government of Canada gives a brief overview of the business buying process. For more information, you can also check out their page “Buying a Business.

Four Tax Considerations for Purchasers:” BDO Canada explains the taxation implications involved in buying a business in Canada.

Canadian Business Acquisition Due Diligence Checklist:” The Association of Corporate Counsel provides a useful checklist for due diligence.

Frequently Asked Questions

What Business Type Should I Choose?

This depends on the size of your business as well as if you plan to work with anyone else. Being a sole proprietor does not protect you from legal liabilities, but it allows you more freedom and less paperwork. On the other hand, it takes time to register as a corporate entity, but it does afford you more legal protection and makes it easier to transfer ownership.

How Do I Choose a Good Lawyer?

The Canadian Bar Association hosts Find-A-Lawyer, where you can search by specialty. Seek one with experience in restaurant acquisitions.

What Contingencies Are Common in Purchase Contracts?

There are a number of contingencies you may build into the contract, which include the following:

  • Allotment for a certain transition period where the seller stays on.
  • The right to review previous financials.
  • Repairs that must be done prior to taking over the lease.
  • Securing of financing for the sale.
  • Assumption of the current lease.

Written by

Todd Rammler is the President and founder of Michigan CFO Associates, a professional firm providing outsourced Chief Financial Officer services to small-business owners. As a Certified Management Accountant (CMA), Todd works with business owners to strategically build scalable, healthy businesses that grow in value and meet the business owner’s long term goals.