When you sell an incorporated business, there are two fundamentally different ways to do it. In a share sale, the buyer purchases the shares of your corporation — the company itself changes hands, with its history, contracts, employees, and liabilities intact. In an asset sale, your corporation sells its assets — equipment, inventory, customer lists, goodwill, the name — and you're left owning a corporation that holds the sale proceeds and whatever wasn't sold.
Tax. If your shares qualify, a share sale can give you access to the lifetime capital gains exemption, which shelters a substantial portion of your gain from tax. The proceeds also come to you directly as a capital gain, rather than being taxed inside the corporation first with only partial relief when you take the money out (part of a corporate-level gain can still flow out tax-free — that's accountant territory, and worth the conversation). On the same deal price, the after-tax difference between structures can still run well into six figures. Whether your shares qualify depends on conditions that must be met — some of them for a period before the sale, which is one of the best reasons to plan early.
Risk and tax, from the other side. Buying assets lets the buyer leave your corporation's history — known and unknown liabilities, old tax years, past employment issues — behind, and pick only what they want. It also gives them a fresh cost base on the assets, which means better depreciation going forward. Every experienced buyer's first draft says "asset purchase" for a reason.
Like everything in a deal: negotiation. Sometimes the price bridges the gap — a buyer who insists on an asset sale may pay more to compensate you for the tax difference, and a seller who needs a share sale may accept a little less. Sometimes indemnities and holdbacks make a share sale safe enough for the buyer. What matters is that you know what each structure is worth to you, after tax before you negotiate — which means your accountant and your lawyer should be talking before the letter of intent is signed, not after.
First, signing a letter of intent that fixes the structure before getting tax advice — the LOI is where this decision really gets made. Second, assuming their shares qualify for the capital gains exemption without checking; the conditions trip up businesses holding surplus cash or investments. Third, forgetting that in an asset sale of a non-union workplace, employees don't transfer automatically — termination and rehiring obligations can be a significant hidden cost (and in a unionized business, the buyer generally inherits the collective agreement).
Fourth — and this one is a trap built specifically for family and employee sales: if you sell your shares to a corporation controlled by your child or your management team, special tax rules (section 84.1) can convert your capital gain into a dividend and take the capital gains exemption off the table entirely, unless the transaction meets the conditions for a genuine intergenerational transfer. The two buyers this practice talks most about — family and employees — are exactly the buyers this rule was written for. Do not paper one of these deals without tax advice.
If you're weighing the two structures, this is exactly the conversation we have on a first call — plain language, with your accountant in the loop.
Twenty minutes, no charge — a straight read on where you stand.
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