There are two main ways to buy or sell an incorporated business: buying and selling its assets or buying and selling its shares.
An asset purchase and sale consists of selling the corporation’s tangible (e.g. inventory and equipment) and intangible (e.g. goodwill and intellectual property) assets. Buyers often prefer asset sale transactions because business liabilities existing at the time of sale remain the responsibility of the seller and because the buyer can exclude undesired assets from the purchase.
An asset purchase and sale, however, may result in increased tax liability for the seller compared to the sale of shares. Before agreeing to an asset purchase and sale as the seller, it is advisable to seek advice on the tax consequences of the sale of assets versus the sale of shares. Any differential can then be factored into price and the structuring of the transaction.
A share purchase and sale consists of selling the ownership units (shares) of a corporation. A share purchase and sale transaction transfers some or all of the ownership of the business from the seller to the buyer. The Corporation retains all of its assets and liabilities.
The seller often prefers a share purchase and sale because it is generally simpler, allows for the seller to walk away from the corporation and can have material tax benefits for the seller including the possible application of the lifetime capital gains exemption. Buyers may also be advantaged by a share purchase and sale as they can set past operating losses against future income of the business.
There are important considerations with material consequences that must be considered when planning the purchase and sale of a business. Consulting an experienced business lawyer for assistance with structuring, negotiating and carrying out the transaction is highly recommended.
Nick Wright is a Toronto business lawyer with extensive experience structuring, negotiating and implementing business purchase and sale transactions. Contact him now at nick[at]wrightbusinesslaw.ca to arrange a time to discuss your purchase and sale transaction.
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