Share sale vs asset sale in Canada: what sellers should know

Share sale vs asset sale is the first structural question in almost every sale of a Canadian private company. In a share sale, you sell the shares of your corporation and the buyer takes the whole company. In an asset sale, your corporation sells the business, and the company itself stays with you. Sellers usually prefer shares. Buyers usually prefer assets. Where you land can change what you keep by hundreds of thousands of dollars.

What is the difference between a share sale and an asset sale?

In a share sale, nothing inside the business changes hands. The corporation keeps its bank accounts, contracts, employees, permits and history. Only its owner changes. The buyer inherits everything the company has ever done, good and bad.

In an asset sale, the buyer picks what it wants: the equipment, the inventory, the customer list, the name and the goodwill. Your corporation receives the purchase price. Anything the buyer leaves behind, including the liabilities, stays with you.

Share sale vs asset sale: the tax difference

For most owners, this is where the decision is made. When you sell shares you own personally, the gain is a capital gain in your hands, and only half of it is taxed. That inclusion rate is still one-half. The proposed increase to two-thirds was cancelled in March 2025, although plenty of pages online still say otherwise.

A share sale may also give you the lifetime capital gains exemption. For 2026 it shelters up to $1,275,000 of gains per person on qualifying shares, and with planning done well in advance, family members who own shares can each use their own. For one shareholder in Ontario’s top tax bracket, the exemption alone can be worth more than $300,000, before the alternative minimum tax and other details your accountant will work through.

In an asset sale, your corporation is the seller, and corporations cannot claim the exemption. The company pays tax on the gain. Equipment sold for more than its depreciated tax value can also bring back depreciation you claimed in earlier years, taxed as ordinary income. Then you pay personal tax again when you take the money out of the company. Planning can soften that second layer, but it rarely closes the gap.

Why buyers usually prefer an asset sale

A buyer’s reasons are just as sound as yours.

• They leave unknown liabilities behind: past tax years, old warranty claims, the dispute nobody has mentioned.
• They get a fresh tax cost for the assets, which means larger depreciation deductions and lower tax for years after closing.
• They choose what to buy and leave the rest, such as excess cash, a building, or a division they do not want.

In a share sale, a buyer protects itself in other ways: deeper due diligence, broader promises from you in the purchase agreement, and often part of the price held back until those promises have been tested. Expect to give more of all three.

Does your company qualify for the exemption?

Not every share qualifies. To count as qualified small business corporation shares, broadly three tests have to be met.

• At the time of sale, all or substantially all of the company’s assets by value (in practice, 90% or more) must be used in an active business carried on mainly in Canada.
• Throughout the 24 months before the sale, more than 50% of its assets must meet that same test.
• Throughout those 24 months, the shares cannot have been owned by anyone other than you or a person related to you.

Owners of successful companies often fail the first test without knowing it. Years of retained earnings sit in the company as cash and investments, and passive assets count against you. Moving them out, often called purification, can fix the problem. It has to be done carefully, and if the 24-month test is in play, well before a sale. It is one of the reasons preparation takes 1 to 3 years.

What happens to employees in a share sale vs an asset sale?

In a share sale, your employees keep the same employer: the corporation. Their jobs, service and terms carry on unless the new owner changes them later.

In an asset sale, the buyer offers jobs to the people it wants. In Ontario, the Employment Standards Act generally treats the service of employees the buyer hires as continuous for statutory entitlements like notice and vacation. The courts treat common law notice separately, and employees the buyer does not hire remain your corporation’s responsibility. Get employment law advice before you agree on who goes and who stays.

Contracts, leases and sales tax

The structure changes the paperwork too.

• Contracts and leases: in an asset sale, each customer contract, supplier agreement and lease must be assigned to the buyer, and many need the other party’s consent. In a share sale they stay where they are, unless they contain a change-of-control clause.
• Sales tax: an asset sale can attract GST/HST. When the buyer acquires all or substantially all of the property needed to run the business (generally 90% or more), buyer and seller can usually make a joint election so that no tax is charged.
• Real estate: if property is transferred in an asset sale, land transfer tax can apply. Some owners keep the building and lease it to the buyer instead.
• Permits and licences: some do not move with the assets and must be applied for again, which can delay closing.

Can you meet in the middle?

Often, yes. Structure is negotiated like everything else.

• Price for structure: if the buyer insists on assets, the price can rise to cover part of your extra tax. Work out that number before the conversation, not during it.
• A hybrid sale: some of the value moves through shares, where you can use your exemption, and the rest through assets, giving the buyer part of the tax benefit it wants.
• Tidy the company first: moving out excess cash, investments or real estate before closing can make a share sale easier for a buyer to accept.

Compare offers on what you keep after tax. The headline price is only half the story.

The structure is usually settled in the letter of intent, often in a sentence or two, and it is hard to reopen once the lawyers start drafting. If an offer has already arrived, ask your accountant to model both structures before you reply.

Every situation is different, so confirm the details with your accountant and your lawyer. And if you would like a second pair of eyes before the structure is set, a short, private conversation is a good place to start.