You have found a business that interests you. The initial discussions are going well, the seller has provided you with some figures, and you now wish to submit an offer.

This is the time to clarify things. Does the price include inventory? Are you buying the company's shares or its assets? Does the seller need to stay on for a few months? What happens if the bank refuses financing?

A business purchase offer or a letter of intent allows you to specify these points before investing further in the transaction. But be careful about what you sign: a preliminary document can already create obligations.

This guide is aimed at buyers and owners of SMEs in Quebec who wish to establish a clear negotiating basis before preparing the final purchase agreement.

What should a business purchase offer contain? It should identify the parties, specify what is being purchased, present the price and payment terms, and then outline the conditions to be met. It should also address expected protections, transition, confidentiality, exclusivity, and the timeline. Above all, it must distinguish between the parameters still to be negotiated and the obligations that apply upon signing.

Purchase offer or letter of intent: knowing what you are signing

The two expressions are sometimes used as if they referred to the same thing. It is better to check the content than to rely on the title.

An accepted purchase offer can commit the parties to complete the transaction, subject to the conditions provided. A letter of intent is often used to establish the parameters of a negotiation without immediately mandating the purchase or sale.

This does not mean that a letter of intent is without consequence. Certain provisions, such as confidentiality or exclusivity, may be mandatory from the moment it is signed. The parties also remain subject to obligations of good faith during the negotiations.

Before signing, ask your legal advisor:

• Are we already obligated to buy or sell if the conditions are met?

• Which provisions take effect immediately?

• Under what circumstances can we end the discussions?

• What obligations will remain if the transaction fails?

The answer should be understandable without having to interpret several contradictory passages.

Specifying who is buying and what is being sold

The trade name on the storefront is not enough to identify the transaction.

You must specify the individuals or companies involved and what they actually own. The owner may hold the shares of the company, while the equipment belongs to that company and the building is held in another corporation.

This distinction must appear early in the discussions.

If the purchase relates to shares

Indicate the target company, the shares involved, and the stake the buyer wishes to acquire.

The purchase of all shares does not raise the same questions as the arrival of a new 40% shareholder. In the latter case, it will also be necessary to discuss control, major decisions, and the relationship between shareholders after the investment.

If certain assets must be removed from the company before the sale, indicate this at this stage and have your advisors examine the consequences.

If the purchase relates to assets

Prepare a sufficiently precise list of elements included and excluded:

• equipment and vehicles;

• inventory;

• trade name and trademarks;

• website, domain names, and other digital assets;

• contracts and current orders;

• building, if applicable;

• other rights necessary for operations.

The debts and obligations that the buyer would agree to assume must also be addressed.

A preliminary inventory may be enough to start discussions, provided it is clear how it will be confirmed. Final documents must precisely describe the assets transferred and the responsibilities retained or assumed.

A detail worth a question: if the building is not being sold, under what conditions will the buyer be able to continue occupying it? Agreement on the price of the business leaves an important issue unresolved if the lease remains entirely to be negotiated.

Explaining the price and how to pay it

A $1.5 million offer can be interpreted differently by both parties.

The seller might expect to receive that amount at closing. The buyer might instead plan to pay part immediately, leave a vendor note, and adjust the price based on the audit results.

Present the components separately:

Putting assumptions on the table

If the price is based on a reported profit, an inventory level, or a specific working capital, indicate it.

For example, the buyer may have based their proposal on the assumption that the business will have a certain level of accounts receivable and stock to continue operations. The seller must understand this expectation before deciding what they can remove from the business.

Working capital adjustments are among the points to be negotiated during a sale, notes the BDC. BDC — Negotiating the sale of your business.

At this stage, ask your CPA to verify that the price assumptions are consistent with available information. If a formula must be specified later, clearly identify what remains to be agreed upon.

Do not present seller financing as a given

A buyer who wants a vendor note should indicate this in their proposal. The seller will then be able to assess the amount they would receive immediately and the risk they would agree to retain.

To better understand this part of the structure, consult our article on the vendor note (balance of sale price).

Defining conditions before proceeding

The offer or letter of intent must explain what remains to be verified or obtained.

This may include financing, document review, consent from certain partners, or an agreement on the premises. Each condition should be accompanied by a process and a deadline.

Due diligence

The buyer needs to examine finances, contracts, operations, and other important elements. The seller needs to know what information to prepare and how requests will be coordinated.

The BDC presents the letter of intent as a way to set the main parameters before proceeding with a detailed examination of the business. BDC — Conducting due diligence.

Include in particular:

• main areas to be examined;

• individuals authorized to review documents;

• a contact person for requests and answers;

• visitation procedures for the facilities;

• rules regarding contact with employees, customers, and suppliers;

• timeframe for reporting problems.

The buyer should not assume they can call key customers to tell them about the sale. These contacts must be organized with the seller.

Financing

If the acquisition depends on a loan, state it clearly.

The amount sought, the process timeline, and the target date for receiving an answer should be discussed. Have it clarified what happens if the lender refuses or proposes different financing than anticipated.

An encouraging first discussion with a bank does not replace confirmation of the structure necessary for the purchase.

Consents and other important conditions

The project may depend on a lease, a franchise agreement, an authorization, or consent provided for in an existing agreement.

Prepare an initial list with your advisors. It may evolve during the review, but elements already known should not wait until the final week.

The question to ask for each condition: who must do what, by what date, and what does the document provide if it does not go through?

Announcing expected protections in the final agreement

The offer does not need to reproduce the entire purchase agreement. However, it should highlight expectations that could change the other party's decision.

Is the buyer considering a holdback on the price? Are they requesting special protection for an already identified problem? Do they expect a non-compete from the seller?

For their part, does the seller consider certain liability limits essential to their agreement?

These questions are best discussed early, even if the details will be drafted later.

Highlighting major disagreements

Suppose the seller thinks they will receive the full price at closing, while the buyer wants a sum to remain in reserve for a specified period. Waiting until the final agreement to announce this request risks reopening the entire discussion.

You can specify the contemplated principles and identify the terms still to be negotiated. The level of detail will depend on the case and the binding nature of the document.

Ask your advisors which points must be decided now so that both parties can invest in the next steps with full knowledge of the facts.

Preparing the seller's role after the sale

The seller's support can be important for taking over operations. Nevertheless, it must correspond to what they are willing to do.

"Available for six months" is imprecise. This could mean a few calls or several workdays per week.

The offer can present the broad outlines of the transition:

• intended duration;

• expected availability;

• priority tasks;

• on-site or remote presence;

• remuneration principle;

• terms still to be negotiated.

For example, the buyer may wish for the seller to introduce key customers, participate in knowledge transfer, and assist with the preparation of initial bids.

If the seller plans to leave the region quickly or start another project, now is the time to talk about it. An unfeasible transition should not serve as an assumption for the financing or the takeover plan.

Framing confidentiality and exclusivity

Confidentiality protects the information exchanged. Exclusivity reserves, for a defined period, certain discussions to one buyer. Both must be treated distinctly.

Protecting information during discussions

A confidentiality agreement can be signed before the letter of intent or coordinated with it. It should frame the use of information, the people authorized to access it, and the obligations applicable if the project stops. BDC — Letter of intent and confidentiality.

If an agreement already exists, have its consistency checked against the new document.

Also, agree on how announcements will be approved. As long as the schedule is not established, a discussion with an employee or supplier can compromise the confidentiality of the process.

Granting exclusivity with clear limits

The buyer may request an exclusivity period to incur due diligence and financing costs. The seller then accepts certain restrictions during this period.

Specify the prohibited or permitted actions, the end date, and the terms of any possible extension. The BDC identifies exclusivity as a point to be framed in the letter of intent. BDC — Letter of intent clauses.

To keep the process concrete, link the requested period to a work program: documents to provide, requests to transmit, financing steps, and submission of a draft agreement.

There is no ideal duration for all files. A company whose documents are ready does not present the same constraints as a transaction involving real estate, multiple shareholders, and consents to obtain.

Distinguishing the dates that matter

The deadline to accept a proposal, the end of exclusivity, and the closing date are not interchangeable.

A work schedule could distinguish:

Indicate with your advisors which dates constitute obligations and which are goals. Also, provide for how to document a schedule change.

Clauses to check at a glance

An example: the same price, two visions of the purchase

Let’s take a fictional case. An entrepreneur offers $1.2 million for a manufacturing workshop in Drummondville.

The seller believes this amount covers the equipment, the trade name, and the clientele. They plan to keep the accounts receivable and invoice the inventory separately.

The buyer thinks the price includes the inventory necessary to continue operations. She also plans to ask the seller to finance $200,000 and to work with her for six months.

They seem to agree on the price, but several important decisions remain open.

A better-defined proposal would allow them to clarify:

• the list of assets included in the $1.2 million;

• the treatment of inventory and accounts receivable;

• the $200,000 requested as seller financing;

• the bank financing condition;

• the availability and compensation planned for the transition;

• the items still to be confirmed.

They could then decide if the proposal is worth pursuing before incurring further costs.

Before signing, do this final check

Reread the document with your advisors and make sure you can explain, in your own words:

• what you are buying or selling;

• how the price was established;

• the proposed payment terms;

• the conditions still to be met;

• important expectations for the final agreement;

• the role expected for the seller;

• restrictions during negotiations;

• commitments that take effect immediately.

If a deposit is requested, have its terms specified before transferring the funds. Also agree on the allocation of costs and what the document provides if discussions end.

To prepare the topics to address, you can consult TRNSFR’s letter of intent template. A template must be adapted to the transaction and reviewed before signing.

Errors that create unpleasant surprises

Relying on the document title. The word "intention" is not enough to explain its legal scope.

Writing a price without its assumptions. Inventory, debts, cash, and working capital must be treated according to the proposed structure.

Requesting seller financing too late. This condition may change their decision to proceed.

Granting exclusivity without a work schedule. The parties should know what needs to advance during this period.

Postponing all protections to the final agreement. Determining requirements deserve to be known before incurring significant costs.

Promising an imprecise transition. A duration says nothing about the number of hours or the expected responsibilities.

Frequently asked questions

Is a business purchase offer mandatory?

It is not a required step in all transactions. A preliminary document remains useful for establishing the main parameters and organizing steps before the final agreement.

What is the difference between a purchase offer and a letter of intent?

An accepted offer can bind the parties to close according to its terms. A letter of intent often organizes a negotiation without immediately imposing the transaction. However, its wording and binding provisions must be examined with a legal advisor.

Should I wait for financing approval to submit an offer?

A proposal can be prepared before final approval, but it must reflect this situation. Draft the financing condition based on the necessary steps and desired consequences.

Can the price be changed after signing?

This depends on the scope of the document, the adjustments provided for, and the agreement of the parties. New information does not automatically give the buyer the right to change the price unilaterally.

Can one withdraw from a letter of intent?

The document and the progress of negotiations must be examined. Mentioning "non-binding" does not mean that all obligations disappear or that parties can act without regard for good faith.

How many pages should the document contain?

There is no ideal length. It must explain the essential parameters and immediate obligations with enough precision for both parties to understand the rest of the process.