When you sell a business, one of the first and most consequential decisions is how the deal is structured: as an asset sale or a share sale. It sounds technical. It isn't, it directly decides your tax bill, your liability after closing, and how much of the sale price you actually keep.
What's the difference?
In a share sale, the buyer purchases the shares of your company and takes the whole entity, assets, contracts, employees, and liabilities included. In an asset sale, the buyer purchases specific assets, equipment, inventory, customer contracts, IP, and leaves the legal entity, and most of its liabilities, with you.
Why sellers usually prefer a share sale
For sellers, share sales are typically more tax-efficient. In Canada, selling shares of a qualifying small business corporation can let you use the lifetime capital-gains exemption, sheltering a significant portion of the gain from tax. A share sale also cleanly transfers the whole business, so you're fully out, with no lingering entity to wind down.
Why buyers usually prefer an asset sale
Buyers often prefer asset sales for the opposite reasons. Buying assets lets them leave your company's liabilities behind, known and unknown, and “step up” the tax cost of the assets they acquire, creating future deductions. They also get to choose exactly what they want and leave the rest.
How the tension gets resolved
Because the two sides usually want opposite structures, the choice becomes part of the negotiation, and it's often reflected in the price. A buyer pushing for an asset sale that costs the seller the capital-gains exemption may need to pay more to offset that tax hit. The right answer depends on your specific situation: the nature of the business, its liabilities, your tax position, and what the other side will accept.
This is exactly the kind of decision where modeling both structures for your actual deal, with your lawyer and accountant, before you negotiate, can be worth far more than the fee. The difference between the two structures is frequently the largest single swing in what an owner walks away with.