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Asset Sale vs. Share Sale – What’s the Difference?

July 11, 2023


Asset Sale vs. Share Sale - What's the Difference?

In this blog we will discuss the two ways in which someone may sell or buy a company – through a share sale or an asset sale – and the benefits to both.

Picture this: you’ve worked hard over the years to build up your business and make it a success. The day has finally come when you are ready to sell it, retire, and travel the world. This is a huge accomplishment and calls for a celebration, but just before you sell it and start packing your bags, you need to determine what implications will come from the sale. How you will be taxed and what will be the most cost-effective way to sell your company?

In this blog we will discuss the two ways in which someone may sell or buy a company – through a share sale or an asset sale – and the benefits to both.

Asset Sale vs. Share Sale

An asset sale occurs when a buyer purchases all or some of the assets of a company, as well as, assumes all or some of the liabilities. The assets purchased can include but are not limited to: accounts receivable, equipment, vehicles, inventory, goodwill, buildings and land.

A share sale occurs when a buyer purchases all the outstanding shares of a company, and in doing so, inherits all the existing liabilities and assets. With a share sale, the buyer also gains control of the company as a legal entity.

In general, the seller typically prefers to sell their shares while a buyer will typically prefer to purchase the assets of a company. But why is this?

Common Benefits to a Purchaser of Assets
Tax Shield Benefits

Upon purchasing the assets of a company, the buyer will have the benefit of decreasing their taxable income going forward through an increased tax shield. The tax shield represents the tax savings from the capital cost allowance (“CCA”) that the buyer will be able to claim on depreciable capital assets.

When purchasing depreciable capital assets, generally there is a higher tax shield benefit because the assets will have an undepreciated capital cost (“UCC”) equal to the fair market value. If shares are purchased, the existing UCC balances transfer with the shares.

For example, as part of an asset sale, a buyer purchases a building with a fair market value of $500,000, but the building has an existing UCC balance of $100,000 in the corporation. When the buyer purchases assets, the building will have a UCC balance of $500,000, which the buyer can claim CCA on. However, if the buyer purchased shares, they would only be able to claim CCA on the existing UCC balance of $100,000 – representing a tax shield benefit foregone.

Choice of Assets and Protection from Liabilities

The purchaser has the option to pick and choose the specific assets they wish to purchase. Accordingly, they would likely avoid purchasing assets that may be redundant to their own operations.

The purchaser also has the choice of which liabilities to assume, if any. Further, the purchaser does not assume control of the corporation as a legal entity. As a result, the purchaser is protected from inheriting any outstanding contingent or unknown liabilities associated with the company.

Common Benefits to a Seller of Shares
The Lifetime Capital Gains Exemption

A seller of shares may be able to receive the Lifetime Capital Gains Exemptions (“LCGE”) upon sale of the shares, which provides significant tax savings. There are several criteria that the company needs to meet for the shares to be eligible for the LCGE, as discussed in our previous blog, “Understanding the Lifetime Capital Gains Exemption and its Benefits”. If the shares qualify for the LCGE, this allows the seller to receive up to $971,190 (the 2023 limit) of the proceeds tax-free.

Simplicity of Transaction

The sale of shares transaction is generally a less complicated process, compared to an asset sale. In an asset sale, the assets and liabilities that are sold need to be specified in the agreement, as well as any contracts or other agreements that are tied to the company but are being transferred as part of the sale. In an asset sale, the seller is left with the corporation and any remaining assets or liabilities within the corporation.  In a share sale, the corporation transfers to the purchaser, and the seller is left with no additional costs to wind up the corporation or withdraw assets from the corporation.

There are a number of other benefits to both the seller and purchaser. The way in which you sell or purchase a company may also depend on the size of a company or the operations.

If you have any questions about the sale of your company, the professionals at Davis Martindale have experience in all areas of accounting, taxation, and advisory services. Regardless of the challenges you and your business face, we have the expertise to assist you with overcoming any obstacles that stand in your way. Give us a call today for a personalized discussion.


Louise Poole - Valuation & Litigation Partner - Davis Martindale
Louise Poole

Valuation & Litigation

Robin Morrison | Davis Martindale | Business Valuations
Robin Morrison