When selling a business in Ontario (or anywhere in Canada), owners typically choose between two main structures: an asset sale or a share sale. Each has distinct legal, tax, and strategic implications for both the seller and the buyer.
🧾 1. Asset Sale
✅ What It Is
The buyer purchases specific assets of the business (e.g., equipment, inventory, contracts, goodwill), not the legal entity itself.
✅ Benefits for Buyers
Can cherry-pick assets and exclude liabilities.
Can depreciate assets for tax purposes.
Less risk of inheriting unknown legal issues.
❌ Drawbacks for Sellers
May trigger recapture of depreciation and capital gains tax.
May need to wind up the corporation after the sale.
Can be more complex if many assets or contracts are involved.
🧠 Best Used When
The buyer wants to avoid liabilities.
The business has few intangible assets or legacy issues.
The seller is willing to dissolve the corporation post-sale.
🧾 2. Share Sale
✅ What It Is
The buyer purchases shares of the corporation, acquiring the entire business entity—including assets, liabilities, and contracts.
✅ Benefits for Sellers
May qualify for the Lifetime Capital Gains Exemption (LCGE) (up to $1.25 million tax-free).
Simpler transaction—no need to transfer individual assets.
Retains continuity for employees, customers, and suppliers.
❌ Drawbacks for Buyers
Inherits all liabilities, including hidden ones.
Less flexibility in asset valuation and tax planning.
May require due diligence and indemnities.
🧠 Best Used When
The seller wants to maximize tax efficiency.
The buyer is comfortable taking on the full business.
The business has valuable contracts or licenses tied to the corporation.
🤝 Who Prefers What?
Seller – Share Sale
Access to the Lifetime Capital Gains Exemption (LCGE), simpler exit, and fewer tax consequences.
Buyer – Asset Sale
Avoids liabilities and allows better tax treatment of assets.
🧠 Hybrid Structures
Sometimes deals are structured as hybrid sales, where:
Key assets are sold.
Some shares are retained or transferred later.
Used to balance tax and legal concerns.
Would you like a decision matrix or checklist to help choose between asset vs. share sale based on your business type and goals?
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