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 helps to specify these points before investing further in the transaction. But be careful what you sign: a preliminary document can already create obligations.

This guide is intended for buyers and SME owners in Quebec who wish to establish a clear basis for negotiation before preparing the definitive 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 the expected protections, transition, confidentiality, exclusivity, and schedule. Above all, it must distinguish between the parameters still to be negotiated and the obligations that apply immediately upon signing.

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

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

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

• Which obligations will remain if the transaction fails?

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

Specify who is buying and what is being sold

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

It is necessary to specify the individuals or companies involved and what they actually own. The owner may hold the company’s shares, while the equipment belongs to the company and the building is in another entity.

This distinction must appear early in the discussions.

If the purchase concerns shares

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

Buying all the 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, important decisions, and the relationship between the shareholders after the investment.

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

If the purchase concerns assets

Prepare a sufficiently precise list of items 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 that you specify how it will be confirmed. The final documents will have to precisely describe the assets transferred and the responsibilities retained or assumed.

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

Explain the price and how to pay it

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

The seller may think they will receive this amount at closing. The buyer might instead plan to pay a portion immediately, leave a balance with the seller, and adjust the price based on the results of the due diligence.

Present the components separately:

Put the assumptions on the table

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

For example, the buyer may have established their proposal assuming the business will have a certain level of accounts receivable and inventory to continue its operations. The seller must understand this expectation before deciding what they can remove from the company.

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

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

Do not present seller financing as a given

The buyer who wants a vendor take-back should indicate it in their proposal. The seller will then be able to evaluate 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 take-back.

Define the 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 procedure and a deadline.

Due diligence

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

BDC presents the letter of intent as a means of setting the main parameters before proceeding with the detailed examination of the business. BDC — Conducting due diligence.

Plan in particular:

• the main areas to examine;

• the people authorized to consult the documents;

• a contact person for requests and answers;

• the procedures for site visits;

• the rules surrounding contacts with employees, customers, and suppliers;

• the deadline 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 schedule of steps, and the target date for obtaining an answer should be discussed. Have it specified what happens if the lender refuses or proposes financing different from what was envisaged.

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

Consents and other important conditions

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

Draw up an initial list with your advisors. It may evolve during the verification, but known elements should not wait until the last 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 work out?

Announce the protections expected 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.

Does the buyer anticipate a holdback on the price? Are they asking for specific protection for a previously 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 worth discussing early, even if the details will be written later.

Bring out significant disagreements

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

You can clarify the intended principles and identify the terms still to be negotiated. The level of detail will depend on the file and the binding nature of the document.

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

Prepare the seller's role after the sale

The seller's support can be important for taking over operations. However, it must correspond to what the seller is willing to do.

"Available for six months" remains 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;

• presence on-site or remote;

• remuneration principle;

• terms still to be negotiated.

For example, the buyer may want the seller to introduce key customers, participate in knowledge transfer, and accompany the preparation of initial bids.

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

Regulate confidentiality and exclusivity

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

Protecting information during discussions

A confidentiality agreement can be signed before the letter of intent or coordinated with it. It should govern 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 with the new document verified.

Also agree on how announcements will be approved. As long as the schedule is not set, 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 verification 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 potential extension. BDC identifies exclusivity as a point to be addressed in the letter of intent. BDC — Clauses in the letter of intent.

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 with real estate, multiple shareholders, and consents to be obtained.

Distinguish 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 objectives. Also, plan how to document a change in schedule.

The clauses to check at a glance

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

Let’s take a hypothetical 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 bill the inventory separately.

The buyer, for her part, 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 in vendor financing;

• the bank financing condition;

• the availability and remuneration planned for the transition;

• the elements still to be confirmed.

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

Before signing, perform this final check

Review 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;

• the key expectations for the final agreement;

• the intended role for the seller;

• the restrictions during negotiations;

• the commitments that take effect immediately.

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

To prepare the subjects 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 "intent" 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 vendor financing too late. This condition may change their decision to continue.

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

Postponing all protections until the final agreement. Decisive 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 mandatory step in all transactions. A preliminary document remains useful for establishing key parameters and organizing steps before the final agreement.

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

An accepted offer may bind the parties to close according to its conditions. 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 you wait for financing approval to submit an offer?

A proposal can be prepared before final approval, but it must reflect this situation. Have the financing condition drafted according to the necessary steps and desired consequences.

Can the price be changed after signing?

This depends on the scope of the document, the planned adjustments, 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 course of negotiations must be examined. The mention "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 next steps in the process.

This article provides general information and does not constitute legal, tax, or financial advice. Have your purchase offer or letter of intent reviewed by your advisors before signing, particularly to confirm its scope and withdrawal conditions.