No Canadian statute prefers either mechanism. The choice comes down to what the target's own financial records can actually support, and how much legal cost the deal size can carry.
Key takeaways
A fund pricing a Canadian acquisition has two structurally different ways to set the final number, and the choice is not cosmetic — it decides who carries the risk of the business changing between signing and closing, and how much diligence and drafting the mechanism itself requires.
Completion accounts price the deal against the target’s actual financial position, measured at or shortly after closing, trued up once full records are available. The process runs in a fixed sequence: the seller prepares an estimated closing statement using accounting policies the purchase agreement has already fixed; the closing price is adjusted against that estimate; the buyer reviews the final, actual figures once complete records exist; and an independent accountant resolves whatever the parties cannot agree on themselves. Treadstonelaw’s own guidance on Ontario practice describes this as “the most common” purchase-price mechanism, running on “a closing date working capital estimate, followed by a post-closing true-up.” See the full completion-accounts mechanics for the worked sequence in detail.
The reason completion accounts dominate Canadian mid-market and SME deals specifically is practical: a locked box needs an audited, or at least reviewed, historical balance sheet to fix the price against, and a privately held Canadian target below mid-market scale often simply does not have one. Completion accounts do not require that the seller already produce institutional-grade interim financials — they only require that the parties agree, in advance, what methodology will be used to measure the real numbers once they exist.
A locked box fixes the price at signing against a historical balance sheet — the “locked-box date” — and does not recalculate it after closing at all. See the locked-box mechanism entry for the full definition; no Canadian statute defines the term, and it is imported deal-structuring practice most common in larger, sponsor-backed or auction-process transactions where a seller wants price certainty at signing rather than a months-long true-up. Because the price cannot move after signing, the entire protective function shifts to a leakage covenant: the seller agrees to run the business normally between the locked-box date and closing, and to repay, dollar-for-dollar, any value extracted in that window that is not on an agreed “permitted leakage” list — an already-budgeted salary or dividend, typically. Anything else the seller pays itself in that gap is leakage the seller must hand back, usually with interest, in place of the true-up a completion-accounts deal would have caught after the fact.
A locked box shifts interim-period risk onto the seller through the leakage covenant, and gives the buyer a fixed number at signing with no post-closing accounting dispute to manage. It also requires the buyer to monitor the target’s conduct through to closing closely enough to catch any leakage, and it depends on a locked-box balance sheet the buyer trusts enough to price against without a post-closing check. Completion accounts push that risk the other way: both sides absorb the cost and delay of a post-closing reconciliation, and — per treadstonelaw’s own guidance on the process — “closing day is really just when that pre-agreed mechanism gets applied for the first time,” with a defined dispute-resolution process, “commonly referring the disagreement to an independent accountant whose determination… is treated as final.” Neither mechanism lets either side simply assert a number on the day.
Ontario purchase-agreement practice recognizes a third adjustment tool worth ruling out explicitly before choosing between the other two: an earn-out. Treadstonelaw's own guidance distinguishes it clearly — earn-outs “depend on post-closing performance rather than a snapshot of the business at closing.” Both completion accounts and a locked box are trying to answer the same question — what was the business actually worth on a fixed measurement date — using different data. An earn-out answers a different question entirely: what will the business go on to earn. A fund debating completion accounts against a locked box is choosing how to measure a snapshot; that choice does not resolve, or replace, a separate decision about whether any part of the price should instead be contingent on future performance.
A smaller SME target rarely arrives with the audited or carefully reviewed interim financials a locked box needs to fix a fair price at signing, and the legal cost of drafting and monitoring a leakage covenant is harder to justify against a modest purchase price. Completion accounts, by contrast, do not require pre-existing institutional reporting — only an agreed methodology applied to the target’s real numbers once they exist — which is why they are the more common route for a fund buying a privately held Canadian target where audited interim numbers are not otherwise available.
A fund’s acquisition vehicle agrees in June to buy 100% of a target’s shares, closing August 1, using completion accounts. The purchase agreement sets a net working capital peg of $2.4 million based on a trailing 12-month average. On closing, the seller’s estimated statement shows $2.55 million, so the buyer pays $150,000 above the base price at closing. Ninety days later, once year-end-quality records exist, the finalized completion accounts show actual net working capital was $2.30 million — $100,000 below the peg. The seller owes a true-up of $250,000: the $150,000 already overpaid, plus the $100,000 shortfall. Had this same deal instead used a locked box against a March 31 balance sheet, the price would have been fixed at signing with no post-closing recalculation at all — protected only by confirming, before closing, that nothing outside the permitted-leakage list left the business in the interim.
Completion accounts, in most cases -- they do not require the target to already have audited or carefully reviewed interim financials, which a locked box's fixed historical balance sheet depends on and a smaller privately held target often does not have.
No. Completion accounts route unresolved disagreements to an independent accountant whose determination is typically final; a locked box has no post-closing recalculation at all, so the only dispute is whether something outside the permitted-leakage list left the business before closing.
It can be, where the target already has reliable, reviewed financials at a recent date and both sides want price certainty at signing -- but it is far more common in larger, sponsor-backed or auction-process Canadian deals than in ordinary SME transactions.
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