Should I sell shares or assets?

This is one of the first structural decisions in almost every sale, and buyers and sellers often want opposite things. It affects your tax bill, the buyers risk, and how much negotiating room there is on price.

What a share sale means

In a share sale, the buyer buys the shares of your corporation directly from you as the shareholder, taking on the company as it exists, including its contracts, its history, and any liabilities, known or unknown. Sellers often prefer this structure because proceeds are taxed as a capital gain, and if the shares qualify, some or all of the gain may be eligible for the lifetime capital gains exemption.

What an asset sale means

In an asset sale, the corporation sells specific assets, such as equipment, inventory, goodwill, and sometimes the business name, to the buyer, and you keep the corporate shell with its cash and any liabilities not sold. Buyers generally prefer this structure because they can choose exactly what to take on and leave unwanted liabilities behind, and they may get more favourable tax treatment on the assets acquired.

Why buyers and sellers often disagree

Buyers worry about inheriting unknown liabilities in a share sale, such as a past lawsuit, an unpaid tax reassessment, or an environmental issue, while sellers often face a larger tax bill on an asset sale because proceeds can be split between different types of income with different tax treatment, including recapture on assets that were depreciated for tax purposes. This tension is usually resolved through price, representations and warranties, or an indemnity, not just by picking one structure outright.

Employees and contracts move differently

In a share sale, employees generally continue with the same employer and their service continues uninterrupted. In an asset sale, employees are typically terminated by the seller and rehired by the buyer, which can trigger obligations under provincial employment standards legislation unless it is structured as a continuation of employment.