Asset sale vs. share sale: what's the difference?

There are two main ways to sell a small business. Knowing which one you're agreeing to can make a big difference to what you keep.

The short version

• Asset sale: the buyer buys the things your business owns, like equipment, stock, customer lists and the name. Your company (if you have one) stays with you.
• Share sale: the buyer buys your shares in the company. The whole company changes hands, with everything in it.

Asset sale

• Works for any business, incorporated or not.
• The buyer chooses which assets to take, and usually doesn't take on old debts.
• Leases, contracts, licences and staff may need to be moved over or redone.
• Sales tax (GST/HST, and PST in some provinces) may apply to some assets.
• Money goes to your company, which may mean tax at the company level and again when you take it out.

Share sale

• Only possible if your business is incorporated.
• Contracts, leases, staff and licences usually stay in place, so it's simpler day to day.
• The buyer takes on the company's history, so they'll ask for more checks and promises (warranties) from you.
• If the shares qualify, you may be able to use the lifetime capital gains exemption, which can greatly reduce your tax. The amount and the rules change over time, so check the current limit with your accountant.

Why sellers and buyers often disagree

Sellers often prefer a share sale for the tax benefit. Buyers often prefer an asset sale for lower risk. It's common to meet in the middle, for example a share sale at a slightly lower price, or an asset sale at a slightly higher one.

Decide early

The type of sale changes your after-tax result, so talk with your accountant before you agree a price. Some planning, like getting shares ready to qualify for the exemption, can take time. Put the agreed type of sale in your letter of intent.

See also: What is my business worth? and Closing day adjustments.