Asset Sale vs. Share Sale: What Business Owners Need to Know When Selling a Business in Canada

Selling a business is a major financial decision and often the culmination of years or decades of hard work. For Canadian business owners preparing for an exit, one of the first and most important decisions is how the transaction will be structured: as an asset sale or a share sale. Each option comes with distinct financial, tax, and legal implications.

In this post, we’ll walk through the key differences, along with the pros and cons of each structure, to help business owners make informed decisions in collaboration with their legal, tax, and wealth advisors.

What Is an Asset Sale?

In an asset sale, the buyer purchases specific assets and liabilities of the business rather than ownership of the company itself. These assets might include equipment, inventory, real estate, customer lists, and intellectual property. The seller retains ownership of the legal entity.

Pros for the Buyer

• Selective acquisition: Buyers can pick and choose which assets and liabilities they want to assume.
• Tax advantages: Buyers can often “step up” the cost base of the acquired assets, allowing for increased depreciation and future tax deductions.
• Reduced risk: Since the buyer is not purchasing the company itself, they may avoid hidden liabilities or legal issues tied to the corporation.

Cons for the Seller

• Double taxation risk: If the seller operates a corporation, the company pays tax on any capital gains from the sale of assets, and the shareholders may pay personal tax when funds are distributed.
• More complex transaction: Transferring individual assets can be more administratively cumbersome, especially if there are leases, permits, or third-party contracts involved.

What Is a Share Sale?

In a share sale, the buyer purchases the shares of the company directly from the shareholders, effectively taking over the entire business—including its assets, liabilities, and corporate history.

Pros for the Seller

• Potential for capital gains exemption: Canadian sellers may qualify for the Lifetime Capital Gains Exemption (LCGE), which in 2025 is up to $1,016,836 for shares of a Qualified Small Business Corporation.
• Simpler transaction: Ownership of the entire company transfers with the sale of shares, reducing the need to retitle individual assets or renegotiate contracts.
• One layer of taxation: Shareholders typically only pay tax on the capital gain—no corporate-level tax.

Cons for the Buyer

• Assumption of liabilities: Buyers take on all known and unknown liabilities of the company.
• No step-up in asset values: Assets retain their original book value, limiting tax deductions.
• More due diligence required: A comprehensive review of the company’s legal and financial history is essential to avoid inheriting issues.

Which Structure Is Right for You?

The choice between an asset sale and a share sale is often influenced by the seller’s tax situation and the buyer’s appetite for risk. In many cases:

• Sellers prefer share sales to maximize after-tax proceeds and simplify the transition.
• Buyers prefer asset sales to minimize liability and increase tax efficiency.

Negotiations often involve compromises: sellers may need to lower their price in an asset sale to offset tax consequences, or buyers may request indemnities in a share sale to manage risk.

Final Thoughts

Whether you’re considering selling your business in the near future or simply planning for a future transition, understanding the difference between an asset sale and a share sale is essential. The structure of the sale will directly impact your tax exposure, net proceeds, and ongoing liabilities.

At Cox Financial Group, we work closely with business owners to develop tax-efficient exit strategies that align with their long-term financial goals. If you’re thinking about selling your business, contact us today to start planning for a successful transition.