Question:
What is the difference between an asset sale vs. a share sale?
Facts:
When selling a business, the buyer and seller will need to negotiate whether the transaction will take place as an asset sale only or a share sale which includes more than just the assets.
An asset sale is where the seller maintains control of a company’s shares but sells the company’s assets only including inventory, equipment, receivables, goodwill and other intangible assets. The seller can keep the corporation as a holding company, dissolve it, or possibly start a new operating business.
A share sale is where you sell your shares in the company. The purchase is buying all the assets and liabilities and shares. As ownership will change, the seller is no longer responsible for any debts, liabilities or tax filings.
As share sale is more attractive to the seller if they are eligible for lifetime capital gains exemption. The current lifetime capital gains exemption for 2022 is $913,630 and is indexed yearly for inflation. For more information on qualifying, please see the FAQ on Lifetime Capital Gains Exemption.
The sale price may be reduced for a share sale (vs asset sale) if the seller is eligible for lifetime capital gains exemption due to the tax savings for the seller. Furthermore, the purchaser will not receive any tax deductions as the purchase price becomes the adjusted cost base going forward.
An asset sale is usually more attractive to the buyer as they can target certain assets and do not have to purchase some assets that are less desirable. The buyer also has less liability for relationships with stakeholders, vendors, and employees. The buyer will also claim tax deductions on the purchase of eligible assets.
The cost of professional fees for due diligence is higher for a share sale than it is for an asset sale as there is more work involved. The cost can be reduced if the vendor has up-to-date and accurate records. For more information, please see FAQ on Due Diligence.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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