Business Asset Sales and Corporate Share Sales

April 9, 2021

We frequently are asked to advise upon the implications of selling shares and/or business assets.  When selling your business, there are many factors to consider and whether you sell shares or assets is a foremost consideration.

Generally, we find that the sale of shares yields a better result for the seller than the sale of assets.  This is especially true if you have the Qualifying Small Business Corporation (“QSBC”) capital gain exemption available to you (currently $800,000 per individual).

At the same time, we find that the purchaser usually prefers to purchase the assets and goodwill of a business as opposed to acquiring the shares.  This is because it allows the purchaser to depreciate assets and amortize goodwill (the cost of a share purchase is allocated to the cost base of the shares) and shields the purchaser from any legal liabilities accrued by the vendor’s corporation.

Therefore, we get into a negotiation whereby the vendor and purchaser arrive at a point where a decision is made as to whether the transaction will be done by way of share purchase or asset purchase.

If the decision is made to conclude the transaction by way of share purchase, it will be important to ensure the corporation is properly structured and carry out appropriate tax planning which may involve reorganizing the corporation.

It is important to review your transaction with your team of advisers which should include your lawyer, accountant, financial planner, real estate agent etc. to consider the issues along with any income tax implications of selling your business.

We work closely with our clients and their advisors to ensure they have the proper structure in place prior to entering into a sale of their business.  If you would like to discuss the structure of your corporation or the possible sale of your business feel free to contact JP McAvoy at jpmcavoy@conductlaw.com or by calling to speak with him or any of our other professionals at (613) 440-4888 and we will be pleased to discuss the options available to you.