Lawyer for U.S. Companies and Investors Buying Canadian Businesses

U.S. companies and investors regularly acquire Canadian businesses, but a Canadian acquisition should not simply be treated as a U.S. transaction with a Canadian seller.

The buyer needs to consider Canadian corporate law, transaction structure, due diligence, tax, financing, employment matters, contracts, leases, regulatory approvals, and foreign-investment requirements. The issues can become particularly important where the U.S. buyer will continue operating the Canadian business after closing rather than simply acquiring a passive investment.

I’m Raz Toor, the founder of Falcon Law PC. We act on Canadian business acquisitions involving both domestic and international purchasers. In cross-border transactions, one of my main objectives is making sure the Canadian acquisition documents work with the buyer’s broader U.S. structure, financing arrangements, and professional advisors rather than treating the Canadian closing as an isolated transaction.

This guide discusses some of the issues U.S. companies and investors should consider when acquiring a Canadian business.

Can a U.S. Company Buy a Canadian Business?

Yes. U.S. individuals and companies can acquire Canadian businesses, subject to the laws and regulatory requirements applicable to the particular transaction.

The buyer may acquire:

• the shares of an existing Canadian corporation;
• the assets of a Canadian business;
• only a particular division or group of assets;
• an interest through a newly formed Canadian acquisition corporation; or
• a minority or strategic investment rather than the entire business.

The appropriate structure depends on the target business, the buyer’s objectives, tax advice, financing, liability considerations, and how the Canadian operations will be held after closing.

Should the U.S. Buyer Purchase Assets or Shares?

The first major structural question is usually whether the buyer will purchase assets or shares.

In an asset purchase, the buyer acquires specified assets of the Canadian business. This can include equipment, inventory, contracts, goodwill, intellectual property, customer relationships, and other identified assets.

In a share purchase, the buyer acquires the shares of the Canadian corporation itself. The corporation continues to own its assets, employ its staff, remain party to its contracts, and carry its historical liabilities.

For a cross-border buyer, the difference can be particularly important because a share acquisition means acquiring an existing Canadian legal entity with its entire corporate and operating history.

An asset acquisition can provide greater flexibility around which assets and liabilities move to the buyer, but it can also require more assignments, consents, new licences, lease documentation, and operational transition work.

You can read more about this distinction in our article on asset and share purchases or through our business purchase and sale practice.

Should the Buyer Form a Canadian Corporation?

A U.S. purchaser does not necessarily need to use a newly incorporated Canadian company for every acquisition, but it is often one of the structures considered.

For example, a U.S. parent may establish a Canadian subsidiary or acquisition corporation that becomes the purchaser under the transaction.

Potential reasons for doing so can include:

• separating Canadian operations from the U.S. business;
• creating a Canadian operating entity;
• facilitating Canadian financing;
• holding Canadian employees, contracts and assets through a domestic corporation;
• implementing the buyer’s tax structure; or
• creating a clearer corporate structure for future Canadian expansion.

That does not mean a Canadian subsidiary is always the best answer. Cross-border tax considerations can materially affect whether the buyer should acquire directly, use a Canadian corporation, or implement another structure.

I generally want the buyer’s Canadian lawyer, U.S. counsel, and tax advisors aligned on the acquisition structure before the definitive purchase agreement is finalized.

The Investment Canada Act Should Be Reviewed

A U.S. buyer acquiring control of a Canadian business may have filing obligations under the federal Investment Canada Act.

For many transactions, this involves filing a notification rather than undergoing a full net-benefit review. Where a mandatory notification applies, it generally must be filed no later than 30 days after implementation of the investment.

Larger transactions that exceed the applicable statutory thresholds can require an application for review before the transaction is implemented.

The thresholds are updated periodically, so they should be checked for the year in which the acquisition occurs rather than copied from an old transaction checklist.

Foreign investments can also be reviewed on national-security grounds regardless of transaction value. That becomes particularly important where the Canadian business is involved in sensitive technology, critical infrastructure, defence, data, critical minerals, or other sectors that may attract additional government scrutiny.

For most ordinary privately held small and mid-sized business acquisitions, this is a compliance issue that can be identified and addressed early rather than a reason the transaction cannot proceed.

Competition Act Review May Matter for Larger Acquisitions

Larger transactions may also require consideration of the federal Competition Act.

Certain transactions exceeding the applicable financial thresholds require pre-merger notification to the Competition Bureau and cannot simply close immediately after signing.

Most privately negotiated small and mid-market acquisitions will not reach these thresholds, but larger U.S. purchasers should determine early whether the Canadian acquisition forms part of a transaction requiring competition-law review.

Canadian Due Diligence Should Be Conducted on Canadian Terms

A U.S. buyer may already have a sophisticated acquisition checklist, but the Canadian target should still be reviewed against Canadian legal requirements.

Depending on the business, legal due diligence may include:

• corporate records and share ownership;
• minute books and corporate filings;
• material contracts;
• customer and supplier arrangements;
• commercial leases;
• employees and independent contractors;
• PPSA registrations and secured debt;
• bank financing;
• litigation and threatened claims;
• regulatory licences and permits;
• intellectual property;
• insurance;
• privacy and data issues;
• tax matters;
• real estate;
• equipment and vehicles; and
• change-of-control provisions.

The importance of each category depends on the target. A transportation company, medical clinic, franchise, SaaS company and manufacturing business will not require identical diligence.

Good due diligence should therefore be tailored to how the business actually operates.

Pay Attention to Change-of-Control Clauses

One advantage of a share purchase is that the Canadian corporation remains the same contracting party after closing.

That does not mean all contracts automatically continue without review.

Commercial agreements frequently contain provisions requiring consent or notice if control of one of the parties changes. These can appear in:

• customer agreements;
• supplier contracts;
• commercial leases;
• financing agreements;
• software licences;
• distribution agreements;
• franchise agreements; and
• other strategic contracts.

A buyer should identify these requirements during due diligence so that required consents do not become last-minute closing problems.

Canadian Financing Can Affect the Deal Structure

Cross-border acquisitions are often financed using a combination of buyer equity, bank financing, and sometimes vendor financing.

The financing structure needs to work with the acquisition documents.

A lender may require security over the Canadian target’s assets, guarantees, postponements, financial reporting, insurance, or other closing conditions. If vendor financing is also involved, the parties may need to negotiate priority between the bank and the seller.

This is an area where the purchase agreement, promissory note, security documents, and lender requirements should be coordinated rather than prepared independently.

Vendor Take-Back Financing Requires Real Documentation

A seller sometimes agrees to finance part of the purchase price through a vendor take-back, or VTB.

From the buyer’s perspective, this can help bridge a financing gap or reduce the amount of cash required on closing.

From the seller’s perspective, however, the unpaid purchase price creates ongoing credit risk.

A VTB arrangement may involve:

• a promissory note;
• interest and repayment terms;
• security over shares or assets;
• personal or corporate guarantees;
• subordination to the buyer’s bank;
• default provisions;
• acceleration rights; and
• restrictions on distributions or additional debt.

Those terms should be negotiated as part of the acquisition rather than left until closing.

Employees Do Not Become U.S. Employees Because the Buyer Is American

Where the Canadian target continues operating in Canada, its Canadian employees generally remain subject to applicable Canadian federal or provincial employment law.

The buyer should therefore review:

• employment agreements;
• compensation;
• vacation entitlements;
• benefits;
• length of service;
• bonus arrangements;
• termination obligations;
• contractor relationships; and
• any outstanding employment claims.

In a share purchase, the employer corporation generally remains the same legal entity after closing. In an asset deal, the employment transition requires a different analysis, including continuity-of-employment considerations under applicable legislation.

Do Not Assume U.S. Contracts Can Simply Be Used in Canada

After closing, a U.S. purchaser may want the Canadian business to begin using the parent company’s standard commercial agreements, employment documents, privacy policies, customer terms, or contractor templates.

Those documents should be reviewed for Canadian use before they are rolled out.

Canadian contract, employment, privacy, consumer protection, franchise, and regulatory laws can differ materially from U.S. requirements.

A cross-border acquisition therefore often has a second phase after closing: integrating the Canadian company into the buyer’s broader business while preserving compliance with Canadian law.

Tax Planning Should Happen Before the Structure Is Locked In

Cross-border tax advice should be obtained early.

The tax consequences can differ depending on whether the purchaser acquires assets or shares, whether the purchaser is the U.S. parent or a Canadian subsidiary, how the acquisition is financed, and how profits will eventually move between Canada and the United States.

A non-resident corporation carrying on business in Canada can also have Canadian tax filing obligations.

These are accounting and tax questions that should be addressed by qualified cross-border tax advisors, but they directly affect the legal structure we implement.

I generally prefer to have the tax structure settled before the purchase agreement is finalized rather than discovering immediately before closing that the buyer’s accountant would have structured the acquisition differently.

Canadian Real Estate and Commercial Leases Need Separate Attention

If the business operates from leased premises, the lease should be reviewed for assignment and change-of-control provisions.

An asset acquisition may require an assignment or new lease. A share purchase may still require landlord consent if the lease treats a change in corporate control as a transfer.

If the target owns Canadian real estate, the acquisition may raise additional title, environmental, financing, tax and corporate issues.

The premises should therefore be treated as a substantive part of the acquisition, not simply a line item on the closing checklist.

Regulated Businesses Require Additional Planning

Certain Canadian businesses operate under professional, industry-specific or governmental licensing regimes.

Examples can include:

• healthcare businesses;
• pharmacies;
• transportation businesses;
• financial services businesses;
• licensed franchise operations;
• businesses handling controlled products; and
• businesses operating under municipal or provincial permits.

The buyer should determine whether licences remain with the corporation following a share transaction, whether new approvals are required, and whether foreign ownership affects eligibility.

Where regulatory approval is required, it may need to become an express closing condition.

What We Have Been Working On in 2026

One of our 2026 transactions provides a useful example of the issues that can arise when a U.S. purchaser acquires a Canadian operating business.

We acted in connection with a proposed US$1.25 million acquisition of a Canadian transportation company by a U.S. buyer. The transaction was structured as a purchase of all of the shares of the Canadian corporation rather than a purchase of individual operating assets.

The financing involved approximately US$950,000 of acquisition financing together with a US$300,000 vendor take-back. As a result, the transaction required us to consider not only the share purchase agreement but also financing conditions, vendor security, due diligence, existing secured debt, employees and drivers, material contracts, vehicles, regulatory matters, working capital, transition arrangements, and the Canadian foreign-investment filing requirements.

The share structure also meant that the buyer was acquiring the existing Canadian corporation with its operating history. That made the scope of due diligence different from an asset purchase where the purchaser can define a narrower group of assets and assumed liabilities.

What stood out to me on that file was how many pieces had to work together. The business purchase agreement could not be considered separately from the lender, vendor financing, regulatory requirements, contracts, employees, security, and the buyer’s cross-border ownership structure.

That is fairly representative of cross-border acquisitions generally: the Canadian legal work is not simply about getting signatures on a purchase agreement. The objective is to make sure the buyer can actually own, finance, operate and integrate the Canadian business after closing.

The example above has been anonymized and certain details have been generalized or rounded to protect client confidentiality.

What Should a U.S. Buyer Have Ready Before Making an Offer?

Before negotiating a Canadian acquisition, I would ideally want the buyer to have considered:

• who the purchaser will be;
• whether a Canadian acquisition corporation will be used;
• whether the transaction will be an asset or share purchase;
• how the acquisition will be financed;
• whether vendor financing is expected;
• which Canadian tax advisors will be involved;
• whether U.S. counsel needs to coordinate any parent-company documents;
• whether Investment Canada Act filings will be required;
• whether the target operates in a regulated industry;
• whether important contracts require change-of-control consent;
• whether a commercial lease is involved;
• what level of due diligence is required; and
• what the buyer intends to do with the Canadian business after closing.

These issues do not all need to be solved before an initial conversation with the seller, but addressing them before a binding purchase agreement is signed usually produces a much smoother transaction.

How Falcon Law PC Can Help U.S. Buyers

Falcon Law PC acts for U.S. companies, investors and other purchasers acquiring businesses in Ontario and elsewhere in Canada.

Our transaction work can include letters of intent, transaction structuring, Canadian corporate setup, legal due diligence, asset and share purchase agreements, financing-related documentation, negotiations, Investment Canada Act filings, commercial leases, third-party consents, and closing.

We also regularly coordinate with the purchaser’s U.S. counsel, accountants, lenders, and other advisors where the Canadian acquisition forms part of a broader cross-border transaction.

You can learn more about our business purchase and sale legal services and our broader business and corporate law practice.

If you are a U.S. company or investor considering the acquisition of a Canadian business, it is usually helpful to involve Canadian counsel before the transaction structure and letter of intent become difficult to change.

This article is intended for general informational purposes only and does not constitute Canadian or U.S. legal, tax, accounting, investment, or financial advice. The requirements applicable to a cross-border acquisition depend on the identity of the investor, transaction structure, industry, value, and other circumstances.