Asset sale

Asset sales are the more common structure for smaller Canadian businesses, mainly because buyers prefer them. A buyer choosing individual assets can leave behind known and unknown liabilities, and can allocate the purchase price across asset classes in a way that improves their own tax position going forward.

What does not travel automatically

• Contracts with customers and suppliers, where an anti-assignment clause requires consent
• The commercial lease, which almost always needs landlord consent to assign
• Licences and permits, many of which are issued to the operator rather than the premises
• The business number and certain tax accounts, which belong to the corporation
• Employees, who are generally treated as terminated by the seller and rehired by the buyer

The trade-off for sellers

The structure that suits a buyer often costs a seller. An asset sale can trigger recapture on depreciated assets and generally does not access the lifetime capital gains exemption, which is available on qualifying shares. That difference can be substantial enough to change the net proceeds materially, which is why structure is negotiated early rather than at closing.