The short answer
In Canada, sellers usually prefer a share sale because the gain is taxed as a capital gain and may be sheltered by the Lifetime Capital Gains Exemption, which is $1.25 million per eligible individual. Buyers usually prefer an asset sale because they get a higher tax cost to depreciate and leave historical liabilities behind. Most deals bridge the difference through price or a hybrid structure.
What is a share sale?
In a share sale, you (or your holding company or family trust) sell the shares of the operating company to the buyer. The company itself doesn't change: it keeps its contracts, employees, permits, bank accounts and history, including any liabilities. Only the owner changes.
What is an asset sale?
In an asset sale, your company sells some or all of its assets (equipment, inventory, customer lists, intellectual property and goodwill) to the buyer's company. Your company keeps the cash and anything not sold, including liabilities the buyer didn't take on. Getting the proceeds from the company to you is a second taxable step.
Share sale vs. asset sale, side by side
| Share sale | Asset sale | |
|---|---|---|
| Usually preferred by | Sellers | Buyers |
| Seller's tax | Capital gain to the shareholder; may qualify for the Lifetime Capital Gains Exemption. | Taxed in the company (including possible recapture of depreciation as income), then again when paid out to the owner. |
| Buyer's tax | Inherits the company's existing tax values; no step-up. | New, higher tax cost for the assets and more capital cost allowance (CCA) going forward. |
| Historical liabilities | Stay with the company; the buyer relies on representations, warranties and indemnities. | Generally stay with the seller's company unless the buyer agrees to assume them. |
| Contracts, leases, permits | Usually stay in place; check for change-of-control clauses. | Must be assigned to the buyer, often with third-party consent. |
| Employees | Employment continues with the same employer. | The buyer offers employment. In Ontario, service is generally treated as continuous for employees the buyer hires. |
| GST/HST | Doesn't apply to the shares. | Applies to the assets unless an election is available, commonly when substantially all assets are sold to a registrant. |
How does the Lifetime Capital Gains Exemption work?
The Lifetime Capital Gains Exemption (LCGE) lets an individual shelter a capital gain on qualified small business corporation (QSBC) shares from tax, up to a lifetime limit that rose to $1.25 million in 2024. Where family members also own shares, often through a family trust set up in advance, each may be able to claim their own exemption.
To qualify, the shares generally have to pass tests at the time of sale and over the previous 24 months, including that all or substantially all of the company's assets are used in an active business carried on mainly in Canada. A company that has built up surplus cash or investments often needs to be "purified" before a sale, and that takes planning. Tax rules change; confirm current limits and requirements with your accountant.
How buyers and sellers bridge the gap
- Price adjustment: a buyer may pay more for an asset deal, or a seller may accept less for a share deal, so both sides share the tax benefit.
- Hybrid deal: part shares, part assets, structured to use the seller's exemption while giving the buyer some step-up.
- Stronger protections: in a share deal, the buyer may ask for broader indemnities, a holdback, or representations and warranties insurance to cover unknown liabilities.
Questions to ask your accountant
- Do my shares qualify as QSBC shares today? If not, what would it take, and how long?
- Can other family members or a family trust claim the exemption?
- What would I keep after tax in a share sale compared with an asset sale at the same price?
- At what asset-sale price would I end up with the same after-tax result as a share sale?
- How would a vendor take-back or earn-out be taxed?
How Altigo approaches structure
We buy both shares and assets, and we raise structure early, before an LOI, so your accountant can model what each option means for you. A deal that works for you after tax is a deal that closes smoothly.
This guide is general information, not tax or legal advice. Speak with a Canadian accountant and lawyer about your situation.
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