A vendor take-back note is a financing arrangement between the buyer and seller, distinct from third-party bank financing, and needs its own documentation, including the note's terms and any security the seller retains in the business.
Document the note as its own instrument
Obtain the note's principal, interest rate, repayment schedule and any security interest, and disclose the seller's continuing financial connection to the business. Coordinate this document with the purchase agreement so the reviewer can see how ownership and control actually transfer despite the seller's ongoing financial stake.
Obtain the executed note, amortization schedule, security agreement, purchase contract, capitalization records, and statements tracing each buyer-funded payment. Identify whether collateral belongs to the investor personally or to the purchased enterprise, and show when title and operating control pass. The investor and enterprise must possess treaty nationality; Canadian permanent residence is insufficient, and at least half of the company must be treaty-national owned. Counted funds need irrevocable commitment and genuine risk of loss. The common documentary failure is presenting the headline purchase price without separating seller credit from capital the buyer has actually exposed.
Hypothetical example: a Clarence-Rockland precision-metal fabricator buys an American machining workshop using personal savings and a vendor take-back note secured against machinery being acquired. The file traces the savings into escrow and displays the note as a distinct obligation. Corporate minutes explain voting control after closing, while the security documents let counsel assess whether the financed portion qualifies. Nothing labels the unpaid balance as cash already invested. Updated ownership certificates also reveal a small non-treaty shareholder, allowing the enterprise-nationality calculation to use the real post-closing percentages.