To protect yourself when buying an Ontario business, you must obtain a WSIB Section 22 Purchase Certificate. Without it, you could be held legally responsible for the seller’s unpaid workplace insurance premiums, and a lawyer can help ensure you do not inherit this debt.
Buying a business in Ontario is an exciting milestone, but it comes with hidden financial risks. One of the most significant dangers is inheriting the seller’s debt to the Workplace Safety and Insurance Board (WSIB).
Under the Workplace Safety and Insurance Act, a buyer can be held liable for the seller’s unpaid premiums. This is where a Section 22 Purchase Certificate becomes an essential part of your commercial transaction. 💼
Whether you are purchasing a thriving retail shop in Toronto, a manufacturing plant in Mississauga, or a local service business in Ottawa, completing your due diligence is critical. Understanding how to navigate the WSIB clearance process ensures you start your new venture with a clean slate.
Step-by-Step Process in Ontario
The process of obtaining a WSIB Section 22 Purchase Certificate generally involves coordination between the buyer, the seller, and their respective legal teams. Most buyers choose to hire an Ontario corporate lawyer to guide them through these steps to ensure full compliance.
Step 1: Draft the Asset Purchase Agreement (APA)
Before contacting the WSIB, your intention to buy the business must be formalized. Your lawyer will typically draft an Asset Purchase Agreement that includes specific clauses regarding WSIB liabilities. 📝
This agreement should explicitly state that the seller must provide a valid Section 22 Purchase Certificate prior to closing. It should also establish a holdback clause, allowing you to retain a portion of the purchase price until the certificate is delivered.
Step 2: The Seller Submits the Request to WSIB
Because WSIB accounts contain confidential financial and labour information, the buyer cannot request the certificate directly. The seller must contact the WSIB to initiate the Section 22 process.
The seller will need to provide the WSIB with the purchaser’s legal name, the closing date of the sale, and details about the assets being transferred. The WSIB will then review the seller’s account to ensure all premiums are fully paid up to the closing date.
Step 3: Review the WSIB Account Status
Once the WSIB processes the request, they will determine if the seller owes any outstanding premiums or non-compliance penalties. If the seller’s account is in good standing, the WSIB will issue the Section 22 Purchase Certificate. 🔍
If the seller owes money, the WSIB will issue a letter detailing the exact amount required to clear the debt. The seller must pay this balance before the certificate can be released.
Step 4: Implement a Financial Holdback (If Necessary)
If the seller cannot or will not pay their WSIB arrears before the closing date, your lawyer will typically use the holdback funds. You hold back enough money from the purchase price to cover the exact WSIB debt.
You then remit this money directly to the WSIB on behalf of the seller. Once the WSIB receives the payment, they will issue the clear Section 22 certificate to you, protecting your new business.
Step 5: Final Declarations and Account Setup
After the transaction officially closes, the seller must close their WSIB account or update their payroll declarations. As the new owner, you must open your own WSIB account if you plan to hire employees or if your industry has mandatory coverage requirements. 👨💻
Registering your new business with the WSIB promptly ensures that your staff is protected and that you are complying with Ontario labour laws.
How Much Does it Cost in Ontario?
Obtaining the WSIB clearance itself is a standard administrative process, but you must account for professional fees when structuring the sale. 💰
- WSIB Administrative Fee: $0 CAD (The WSIB does not charge a fee to issue a Section 22 Purchase Certificate).
- Corporate Lawyer Fees: $3,000 to $10,000+ CAD (Fees vary widely depending on the complexity of the business purchase and the location of the law firm).
- Potential WSIB Debt: Variable (If you fail to get the certificate, you could be liable for thousands of dollars in unpaid seller premiums).
| Transaction Type | WSIB Liability Risk | Section 22 Required? |
|---|---|---|
| Asset Purchase | High (Buyer assumes specific statutory debts) | Yes |
| Share Purchase | Very High (Buyer assumes the entire corporate entity and all its history) | No (Clearance is checked via a different WSIB status letter process) |
How Long Does the Process Take?
Timing is a critical factor when buying a business. You should never leave the WSIB certificate request to the last minute. ⏱️
If the seller’s account is perfectly up to date, the WSIB can often issue the Section 22 Purchase Certificate within 5 to 10 business days. However, if the WSIB decides to audit the seller’s payroll records or if there are outstanding balances, the process can take 30 to 60 days. Always build a buffer into your closing date.
Frequently Asked Questions (FAQ)
What happens if I buy the business without a Section 22 Certificate?
If you close the transaction without this certificate, the WSIB can legally pursue you, the buyer, for the seller’s unpaid premiums. This debt is enforced strictly in Ontario.
Can I check the seller’s WSIB status online?
You can use the WSIB eClearance portal to see if a contractor is eligible for clearance, but a formal Section 22 Purchase Certificate requires a specific request by the seller during a business sale.
Does this apply if I am only buying equipment?
Generally, buying a business in bulk (assets, goodwill, client lists) triggers Section 22. Buying a single piece of used machinery usually does not, but consulting a lawyer is highly recommended to assess your specific risk.
Who is responsible for paying the WSIB arrears?
The seller is responsible for their own arrears. However, if they fail to pay, the buyer is held statutorily liable unless a holdback is properly executed.
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