Two weeks is enough time to find the problems that kill a deal later, if you know exactly what to look at. Here is the screen that runs before the LOI, not after.
Key takeaways
STEP 01 OF 10
Request the corporate minute book and articles in week one, and specifically ask whether a unanimous shareholder agreement is in place. CBCA s. 146(3) deems “a purchaser or transferee of shares subject to a unanimous shareholder agreement” to be a party to it automatically — you can be bound by governance terms you never negotiated. Section 146(4) gives some protection: a purchaser not given notice of an existing USA “may, no later than 30 days after they become aware” of it, rescind the transaction — but that right only helps if you actually find out.
Surfacing the USA in week one, rather than discovering it during closing document review, is what actually preserves the 30-day rescission option as a meaningful protection rather than a technicality.
STEP 02 OF 10
CBCA s. 105(1) disqualifies anyone under 18, incapable, not an individual, or who “has the status of bankrupt” from serving as a director. Section 105(3) requires at least 25% of directors to be resident Canadians, or at least one where the board has fewer than four members. Neither check takes long, and a target whose own board does not comply is telling you something about how carefully its governance has been maintained generally — worth a second look at everything else in the minute book.
STEP 03 OF 10
CBCA s. 189(3) requires shareholder approval for “a sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business,” and s. 189(6) gives every share a vote on that resolution “whether or not it otherwise carries the right to vote” — a special resolution under s. 2(1), needing at least two-thirds of votes cast. If the deal is shaped as a purchase of substantially all the target’s assets rather than its shares, plan for that governance process and its timeline from week one, not as a closing-week surprise.
That approval also triggers dissent rights under s. 190 for shareholders who oppose the sale, entitling them to the fair value of their shares as of the day before the resolution was adopted. Note the Canadian term: this is “dissent,” not the American “appraisal right” — the two describe the same underlying mechanic, but only one is the word the CBCA actually uses.
STEP 04 OF 10
Before assuming government-guaranteed financing will be available for this deal, confirm two things: the target has gross annual revenues of $10 million or less (the eligibility ceiling for the Canada Small Business Financing Program), and it is not a farming business, which uses a separate federal program entirely. Then confirm the deal shape itself — the program cannot finance a share purchase at all, only the purchase of eligible assets, priced at the lesser of cost and appraised value.
If the seller is likely to insist on a share sale (Step 10 explains why), factor the resulting financing gap into your screen now, not after the letter of intent already commits you to a structure the cheapest financing option cannot support.
STEP 05 OF 10
A quick registrant-status check now avoids a surprise later: the joint election under ETA s. 167(1), which lets qualifying asset sales close with no GST/HST payable on most of the consideration, is unavailable where the supplier is a registrant and the recipient is not. If the acquiring entity is not yet registered, that is a closing-condition item to add to the LOI now.
Also confirm whether the target sits under the small-supplier threshold, currently $30,000 measured over the four preceding calendar quarters under ETA s. 148. That measure expressly excludes goodwill and capital-property sales, so selling the business itself does not, on its own, push a genuinely small supplier over the registration line — worth knowing before assuming a very small target must already be registered.
STEP 06 OF 10
Competition Act s. 109(1) exempts a transaction from mandatory notification unless the parties, together with their affiliates, have assets in Canada or gross revenues from sales in, from or into Canada exceeding $400,000,000 in aggregate. A standalone lower-middle-market target rarely approaches this on its own — the risk is the buyer’s own affiliated group crossing it cumulatively. Run the arithmetic in week one if the buyer already owns other Canadian businesses, since a notifiable transaction changes the closing timeline by adding a statutory waiting period.
If the party-size test is cleared, a separate share-acquisition test still matters for how much of the target you are actually buying: under s. 110(3)(b), acquiring more than 20% of a publicly traded corporation’s voting shares, or more than 35% where none are publicly traded, is what makes a share deal notifiable in the first place — below those thresholds, size alone does not trigger the regime.
STEP 07 OF 10
ITA s. 230(4)(b) requires the target to have kept its records and books of account “until the expiration of six years from the end of the last taxation year to which the records and books of account relate.” Ask for the full six years in week one, and treat any gap in what is produced as a finding in itself — see running financial diligence without a Big Four firm for what to do with the records once they arrive.
STEP 08 OF 10
If the target is being bought as a bolt-on to an existing portfolio company, take a first look now at Competition Act s. 45(1.1), which makes it a criminal offence for an employer to agree with another, non-affiliated employer to fix wages or not solicit each other’s employees. This becomes an active planning question once integration starts — see writing a hundred-day plan for a new acquisition — but flagging the affiliate structure in week two, before any pay-harmonisation conversation happens, is cheaper than untangling it after the fact.
STEP 09 OF 10
Pull a basic roster with hire dates and current compensation. If any post-acquisition plan involves eliminating roles, this is the data needed to model exposure against the notice bands, the five-year-service-plus-$2.5-million-global-payroll severance test, and the 50-employee mass-termination threshold covered in full in the hundred-day guide. Knowing the number in week two, even roughly, changes what a realistic integration budget looks like before the LOI is signed.
STEP 10 OF 10
A seller who has meaningful lifetime capital gains exemption room available under ITA s. 110.6 has a real, rational reason to insist on a share sale rather than an asset sale — it is what lets them shelter up to $625,000 of taxable capital gain from tax entirely. Understanding that motivation in week one, rather than treating a seller’s structure preference as arbitrary, helps frame the negotiation honestly: if the buyer needs an asset deal for CSBFP financing reasons and the seller needs a share deal for LCGE reasons, that tension is worth surfacing and pricing explicitly, not discovering deep into exclusivity.
Put the findings from all ten steps into the letter of intent itself — the deal shape, the financing assumption, any USA or governance issue found, and the headline employment and tax exposures. A two-week screen that lives only in your own notes is not doing its job; it needs to shape the actual document both sides sign next.
Corporate minute book and search for an existing USA; director residency and disqualification check; the deal-shape decision (share sale vs. substantially-all-assets sale, and its shareholder-vote and dissent-right consequences); the CSBFP eligibility screen against revenue and business type; GST/HST registrant status; the Competition Act party-size arithmetic if the buyer has other holdings; a request for six years of records; a first look at wage-fixing exposure if this is a bolt-on; a basic headcount and tenure roster; and the seller’s likely structural preference and why. None of these ten items requires more than a records request, a short search, or an afternoon of arithmetic — the point of the two-week window is that all ten are checkable fast, before either side has invested real negotiating capital in a structure that later turns out not to work.
The research brief for this topic pointed to the CBCA generally, without a specific section. That is a starting point, not a citation — a bare reference to “the CBCA” carries none of the specific tests a two-week screen actually needs. The sections used throughout this guide (s. 105 director residency, s. 109/110 Competition Act thresholds cited separately, s. 146 unanimous shareholder agreements, s. 189/190 substantially-all-assets sales and dissent) were each confirmed against the Act’s own text, not assumed from the general reference. Treat any deal checklist that cites “the CBCA” without a section number the same way — as a pointer to go verify, not a fact already established.
A buyer already operating two Canadian portfolio companies with combined Canadian assets of $180,000,000 is screening a target with $12,000,000 in assets and no material affiliation to anything else. Combined affiliated assets in Canada: $192,000,000 — comfortably under the $400,000,000 party-size threshold in s. 109(1), so the transaction is not notifiable on the assets branch of the test (the revenue branch would need checking too, but on these facts neither is close).
The same target reports $9,400,000 of gross annual revenue for its most recent fiscal year — under the CSBFP’s $10,000,000 eligibility ceiling, so the buyer can plan around CSBFP-eligible asset financing if the deal is structured as an asset purchase. If the seller instead insists on a share sale for LCGE reasons, that same $9,400,000 figure becomes irrelevant to financing eligibility, because the program cannot finance a share purchase at any revenue level. Running both numbers against both possible deal shapes, in week one, is what turns Step 4 and Step 10 from separate checklist items into one connected decision.
It's enough time to ask for and review the minute book, which is where a USA would be recorded if one exists. It is not a substitute for full legal diligence before closing — the two-week screen exists to catch deal-shape-changing issues early, not to replace the deeper review that follows a signed LOI.
A refusal at the screening stage, before exclusivity, is more informative than the same refusal after you've committed negotiating capital — it's a legitimate reason to slow down or walk away rather than assume it will resolve itself later.
The target's own size rarely matters on its own — what matters is the buyer's affiliated group total. A small target bought by a buyer with no other significant holdings will almost always clear the threshold easily; the same target bought by an active consolidator might not.
Much of it — the records requests, the headcount pull, the basic arithmetic — can be done internally to move quickly. The USA search and the deal-shape/dissent-rights analysis in Steps 1 and 3 are worth a short, targeted legal review before the LOI is signed, even if full diligence counsel is engaged later.
The screen sets the baseline the hundred-day plan later measures against — see writing a hundred-day plan for a new acquisition for how the same headcount, tax and governance findings carry forward into the post-closing integration sequence.
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