Asset sale vs share sale

Every Canadian business sale is structured one of two ways, and the choice shapes the price, the tax bill and who ends up responsible for what happened before closing. An asset sale sells the business’s assets — equipment, inventory, contracts, goodwill — out of the corporation, leaving the corporate shell behind with the seller. A share sale sells the shares of the corporation itself, so the buyer steps into the company exactly as it stands, past liabilities included. Buyers and sellers often start from opposite preferences, which is exactly why the structure ends up negotiated rather than simply chosen by one side.

Asset sale

In an asset sale, the buyer picks which assets and which contracts to take on, and the purchase price is allocated across categories of assets for tax purposes. Recapture of previously claimed depreciation can turn part of the proceeds into income rather than a capital gain for the seller, and HST generally applies to the sale of taxable assets unless a specific election is available. Employees are not automatically carried over; the buyer typically has to offer new employment on new terms.

• The buyer generally leaves undisclosed or unknown liabilities behind with the seller’s corporation
• Price is allocated across asset categories, which affects each side’s tax result differently
• HST treatment depends on what is being sold and whether an election applies
• Contracts, leases and licences usually need to be assigned or reissued to the buyer

Share sale

In a share sale, the buyer acquires the corporation as a going concern, with its contracts, licences and employees already in place, typically without needing to assign each one individually. That continuity is also the risk: the buyer inherits the company’s history, including liabilities that may not be visible in the data room. A share sale is also the structure that can allow an individual seller to claim the lifetime capital gains exemption on qualifying shares, which is not available on an asset sale.

• Contracts, permits and employment relationships generally continue without individual assignment
• The buyer takes on the corporation’s history, including liabilities not yet discovered
• Only shares of a qualifying small business corporation can access the lifetime capital gains exemption
• Due diligence tends to run deeper, because the buyer is inheriting everything, not selecting pieces

How to choose

The two sides usually want opposite structures for good reason: sellers often prefer a share sale for the tax treatment and the clean exit, while buyers often prefer an asset sale to control what liabilities come with the business and to reset the tax cost of the assets acquired. What actually happens depends on the specific business — how much of the value sits in a professional licence or long-term contracts that are hard to reassign, how exposed the corporation is to unknown liabilities, and what each side’s accountant models out once real numbers are involved. It is common for the final structure to land as a negotiated compromise, sometimes with the seller providing extra representations and warranties to bridge the gap between what each side wanted.