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  • Anmol Trehin

Buying a Business: Share vs Asset Purchase

sale of a business, buying a business, lawyer in montreal,  Astre Legal, Anmol Trehin, Asset purchase, share purchase, transaction

An asset purchase and a share purchase are two of the most common ways to buy an existing business.

In general, a seller will prefer selling shares of the company while the buyer will prefer purchasing the assets instead. However, this may change depending on the nature of the business, and the parties involved. Today we’ll discuss these two purchase options to help you decide the best one for you.

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What is a share purchase?

Through a share purchase, you buy 100 percent of the issued shares of the corporation thereby replacing all the current shareholders. This means you also take on the assets and liabilities of the corporation. This sale is evidenced by a share purchase agreement which includes a description of the shares, the price, and the purchaser and vendor’s engagements.

There are tax implications to consider in a share purchase which depend on the parties involved and the type of business. For example, the shares of Canadian controlled private corporation which are acquired by non-resident Canadians could result in a change in corporate tax status. Consequently, it would lose its right to claim a small business tax deduction.

Furthermore, the sale of shares generally results in a capital gain of which only 50 percent of the proceeds are included as income making it an attractive option for sellers. To sweeten the deal, the seller of a qualified business can rely on the lifetime capital gains exemption. For a qualified business selling shares in 2022, the lifetime capital gains exemption is $913,630. Let’s take a look at an example.

You sell the shares of your business and make a profit of $975,000. Of this amount, only 50 percent is included as income so you would pay taxes on $487,500 ($975,000 x 50%).

However, if you qualify for the lifetime capital gains exemption so you only pay taxes on the amount above the threshold: $975,000 - $913,630 = $61,370. Of this amount, only half is taxable so you would pay taxes on $30,683.

The buyer also benefits since they may avoid paying taxes on certain assets such as equipment and inventory that would otherwise be due through an asset purchase. However, there is more risk involved in this method as the buyer also acquires all of the debts and liabilities. Often the liability is unforeseeable and matters may escape even the most thorough due diligence. To help curb these risks, the buyer can withhold a certain amount of the purchase price to ensure they will not be responsible for unforeseen liabilities within a specified time period.

What is an asset purchase?

In an asset purchase, you have the option to select which assets you want to buy. On the other hand, the seller could refuse to only sell part of their assets, wishing instead to sell them as a package. These assets include both tangible and intangible goods, such as equipment, inventory, goodwill, and contracts to name a few.

Regardless of how many assets are bought, each one has to be valued and sold making this a complex transaction. Additionally, certain assets have specific requirements like the sale of a building which must be done through a separate agreement. Generally, there are also registration rules and title transfer requirements to consider.

Despite its complexity, asset purchases are generally favoured by a buyer since they can choose which assets to buy and avoid taking on the company’s debts and liabilities, aside from those explicitly agreed to. Furthermore, the buyer can purchase the assets and create a new company avoiding any unforeseen future liabilities. However, third party consents may be required for assets like contracts, leases, licences or permits. Usually, these agreements will state that a change in control requires approval of a third party or may result in a forfeiture of the agreement.

In terms of taxes, an asset purchase is subject to the applicable GST and QST, while that is not the case for a share purchase. Moreover, the price of each asset must be negotiated between the parties all the while keeping in mind tax implications. For non-depreciable assets, the seller will generally try to allocate these goods the highest possible value thereby avoiding the recapture of depreciable goods (which is fully taxable income) and instead realise a capital gain, of which only 50 percent is taxable. On the other hand, the buyer will prefer to allocate the greatest value to the depreciable assets to maximise the capital cost allowance and reduce their future taxable income.


There’s a lot to consider whether you’re buying or selling a business. While vendors will generally favour a share transaction, buyers will prefer opting for an asset transaction. However, this is not a hard and fast rule and many factors nuance the decision to be made. It’s always best to consult with a lawyer before signing any papers to discuss the best option for your situation.


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