Business purchase and sale discussion for buyers and sellers

Granville Law Group

BUSINESS PURCHASES AND SALES

A business purchase or sale is either a share transaction or an asset transaction

  • a share sale is generally more beneficial to a seller due to the possibility of Tax Planning, for example, use of a lifetime capital gain exemption, and
  • an asset sale is generally preferred by a buyer due to reduced liability exposure by buying company assets instead of a corporation itself together with its obligations and liabilities.

Our lawyers will work with your accountant to devise the most advantageous option for your business acquisition or sale. This is often determined by balancing ongoing financing requirements, liability concerns and tax consequences.

Decision framework

Asset sale v share sale

This comparison helps clarify how transaction structure can affect bargaining power, liabilities, tax treatment, due diligence, and the overall economics of the deal.

Comparison of asset sale and share sale for sellers and buyers
Structure Benefit to Seller Disadvantage to Seller Benefit to Buyer Disadvantage to Buyer
Asset sale
  • The final price will represent a balance between tax implications, division of liabilities, as they affect bargaining powers of the parties.
  • Some liabilities would remain with the seller rather than being transferred to the buyer (acc receivable/payable, loans, disputes).
  • Seller’s employees are generally retained.
  • Higher purchase price due to complexity of the transaction and increased tax obligations.
  • Typically, more complex, involving substantial paperwork.
  • May require obtaining costly and time-consuming 3rd parties’ authorization (lease of equipment).
  • Tax burden.
  • Allocation of the purchase price and liabilities may be beneficial for post-closing risk and purchase price negotiations.
  • No assumption of corporate liabilities limiting risk exposure.
  • Tax advantages, such as increasing the tax cost of depreciable assets to the current market value, which can reduce the buyer’s tax obligations in the future because they can obtain greater deductions in capital cost allowance.
  • Due to the additional tax liability, the seller will seek a higher purchase price.
  • overall cost of the transaction for the buyer may increase.
Share sale
  • Simplicity and potential tax advantages for the seller, but will require buyer to carefully manage the risks of inheriting all liabilities, requiring due diligence and negotiation of protections.
  • Typically, more straightforward process.
  • Tax benefits (lifetime capital gain exemption on QSBC shares).
  • If there is a significant goodwill, it is beneficial to continue operating under the seller’s name.
  • Seller’s employees are generally retained.
  • Purchase price may be lower since all the liabilities are transferred to the buyer.
  • Seller will be required to provide warranties or/and indemnities to cover some of the liabilities.
  • Buyer may negotiate a lower price due to taking on more risk of liabilities.
  • Buyer will require warranties and indemnities to cover some of the risks.
  • 3rd party consents may still be required (loans, leases).
  • Assumption of the corporation’s liabilities.
  • Due diligence is essential to assess risks and obtain indemnification.
  • Less desirable tax result as the purchase price will become the adjusted cost base of the shares, not the assets, limiting tax deductible depreciation.

Buyer protection

Due diligence

It is always strongly advised that the buyer does a due diligence, so that the buyer by acquiring shares or assets only acquires seller’s liabilities the buyer wishes to acquire and not the ones that the buyer does not. The buyer should obtain information and review:

  • Financial statements;
  • Minute book;
  • Agreements in place;
  • Existing financing and outstanding security;
  • Trade liabilities and accounts payable;
  • Statutory liabilities such as:
  • Canada Revenue Agency for Income Tax, GST and Payroll Deductions;
  • WorkSafe BC;
  • BC Provincial Sales Tax;
  • Employment Standards

Next step

Speak with Granville Law Group about your anticipated business purchase or sale

Contact us at 604-669-6580 or arrange a meeting using our contact form to discuss your anticipated business purchase or sale.

Frequently asked questions

Frequently Asked Questions

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

A share sale involves buying the company’s shares effectively acquiring the company itself, whereas an asset sale involves purchasing specific assets of the company with the company itself remaining with the seller.

2. Which is more beneficial, a share sale or an asset sale?

A share sale is generally more beneficial to a seller because of potential tax advantages such as the lifetime capital gain exemption, while an asset sale is generally preferred by a buyer because it can reduce liability exposure by limiting what is acquired.

3. What should be included in due diligence for buying a business?

Due diligence should include reviewing financial statements, corporate documents such as minute books, existing agreements and whether they can be assigned, financing, trade liabilities, and statutory liabilities.

4. Why is due diligence important in a business purchase?

Due diligence ensures that the buyer is aware of all liabilities and obligations, avoiding unexpected issues post-purchase.

5. How can Granville Law Group assist with business purchases and sales?

Granville Law Group works with your accountant to devise the most advantageous option, balancing financing, liability concerns, and tax consequences.

6. What are statutory liabilities to consider during a business purchase?

Statutory liabilities include obligations to the Canada Revenue Agency for income tax, GST, payroll deductions, WorkSafe BC, BC Provincial Sales Tax, and Employment Standards.

7. How does an asset sale reduce liability exposure?

In an asset sale, the buyer only acquires the specified assets and not the corporation itself, thereby avoiding the corporation’s existing liabilities.

8. What are the tax implications of a share sale?

A share sale may offer tax benefits such as the lifetime capital gain exemption for the seller.

9. What role does an accountant play in the purchase or sale of a business?

An accountant helps devise tax strategies, evaluate financial health, and ensure the transaction is financially advantageous.

10. What is the significance of reviewing the minute book in due diligence?

Reviewing the minute book ensures that all corporate records are up-to-date and legally compliant, providing a clear picture of the company’s governance.

Schedule a consultation

Speak directly with Alina Nikolaeva

Call Alina Nikolaeva at 604-443-5678 to schedule a consultation.

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