An asset purchase is often sold to buyers as a clean break from a target's history. It is — but only for the liabilities the agreement expressly leaves behind, and even then, the labels a buyer and seller agree between themselves do not always bind the people who were never at the table.
Key takeaways
The appeal of an asset purchase, for a buyer wary of a target's history, is that liability does not transfer by default — it transfers because the agreement says it does. That makes the assumed-liabilities schedule one of the most heavily negotiated pages in the whole purchase agreement, and it is worth being precise about what it actually controls and what it does not.
A treadstonelaw explainer on assumed versus excluded liabilities in an Ontario asset purchase states the contrast with a share deal directly: “In a share purchase, the corporation itself — with all of its historical liabilities, known and unknown — changes hands. An asset purchase works differently.” The mechanism: “The buyer and seller expressly agree, in the APA itself, exactly which specific liabilities the buyer is taking on. Everything else stays behind with the selling corporation by default.” Liabilities buyers typically do take on include obligations under specifically assigned contracts and leases running from closing forward, negotiated trade payables tied to purchased assets, and accrued vacation entitlements for employees the buyer hires. What typically stays with the seller: pre-closing tax liabilities, existing or threatened litigation from pre-closing conduct, undisclosed or contingent liabilities, obligations to employees the buyer does not hire, secured debt against retained assets, and pre-closing environmental liabilities. The same source is explicit that the schedule is the actual boundary, not a summary of it: an unstated liability defaults to the seller because it was never assumed, not because it was affirmatively excluded.
Section 167 of the Excise Tax Act lets a buyer and seller elect out of GST/HST on most of an asset-purchase business transfer where the buyer is “acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business.” But the relief itself is not absolute: subsection 167(1.1)(a) says no tax is payable “other than” a taxable supply of a service still to be rendered by the seller, a taxable supply of property by lease or licence, and, where the recipient is not a registrant, a taxable sale of real property. So a purchase agreement's own list of assumed liabilities operates alongside a separate statutory list of what stays taxable regardless of what the parties agree. Goodwill sits outside the tax base entirely under a companion provision, section 167.1: where the same all-or-substantially-all test is met, “that part of the consideration shall not be included in calculating the tax payable” that is reasonably attributed to goodwill.
The treadstonelaw explainer is blunt about the limit of the buyer-seller bargain: “Labelling a liability 'excluded' in the APA is a promise between buyer and seller — it doesn't necessarily bind third parties.” A secured lender with a Personal Property Security Act registration against a purchased asset can generally still enforce against it regardless of what the assumed-liabilities schedule says, because the buyer and seller had no power to contract away a third party's existing security interest. The practical consequence is that PPSA discharge, not just contractual exclusion, is what actually clears an asset of a pre-existing lien.
Where a going-concern business changes owners and retained employees keep working for the new owner, Ontario's employment-standards continuity rule attributes their length of service with the seller to the buyer — the guide's own words describe employees as getting “credit” for their past employment rather than starting over as new hires, with the guide's worked example noting an employee with ten years at the seller who is let go a year after the transfer is entitled to eight weeks' notice, not one. That statutory continuity operates independently of whatever the purchase agreement's assumed-liabilities schedule says about employment obligations — it is not something a buyer can contract around by simply excluding “employee liabilities” from the schedule.
A related treadstonelaw answer on environmental liability in a share versus asset purchase notes the same limit applies to contaminated property specifically: “If you still choose to acquire the contaminated real property as one of the purchased assets, environmental regulators can generally look to the current owner or operator of land, regardless of how the purchase agreement allocates responsibility between buyer and seller privately.” Structuring a deal as an asset purchase does not, on its own, insulate a buyer who ends up owning contaminated land from the regulator's reach.
The same assumed-versus-excluded logic changes shape again where the buyer is only taking part of the target's business, discussed in buying a division rather than a whole company, and it disappears entirely on the share-purchase side of a deal, where buying the shares of a company with a bad history covers what a buyer inherits instead of what it can carve around, and where the two structures are ultimately priced against each other in pricing the difference between a share and asset deal.
A buyer purchases the operating assets of a distribution business. The assumed-liabilities schedule expressly picks up a $180,000 trade payable owed to the company's largest supplier, because the buyer wants to keep that relationship intact, but expressly excludes a pending WSIB claim relating to a workplace incident that happened before closing. Two months after closing, the supplier's lawyer discovers the schedule and treats the assumption as binding; the WSIB claim proceeds against the seller, exactly as excluded. Separately, a lender that held a PPSA registration against the company's delivery trucks — never mentioned in the schedule at all — still has to be paid out or the registration discharged before those specific trucks are clear, because the schedule was never capable of binding a secured creditor who was not a party to it.
It stays with the seller by default. In an asset purchase the agreement's assumed-liabilities schedule is the actual boundary line, not a summary of one, so anything not expressly assumed is not the buyer's obligation.
Not automatically. Pre-closing tax liabilities are typically excluded by negotiation, but the GST/HST business-transfer election has its own statutory carve-outs — services still to be rendered, leases and licences, and real property sold to a non-registrant remain taxable regardless of what the agreement says.
Yes, in effect. Labelling a liability excluded is a promise between buyer and seller; it does not bind a secured creditor's existing registration or an environmental regulator's authority over the current owner of contaminated land.
A 30-minute call is enough to tell you whether AI pays for itself here.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email as each measure is published.
