You are choosing what transfers, and who pays which tax
The two structures answer one question differently: does the buyer acquire the company, or the things the company owns. Buy the shares and everything comes along, the contracts, the licences, the employees, the bank account, and also every tax position ever filed and every liability recorded or not. Buy the assets and you assemble a business piece by piece into your own corporation: the equipment, the inventory, the goodwill, the name, with the seller's corporation left behind holding whatever you chose not to take.
Everything else in the negotiation flows from that split, and it is worth seeing the whole board at once before going deeper.
| Question | Asset purchase | Share purchase |
|---|---|---|
| What the buyer acquires | Selected assets, moved into the buyer's own corporation | The corporation itself, with everything it owns and owes |
| Old liabilities and tax history | Mostly stay with the seller's corporation | Come with the company, filed and unfiled |
| Seller's tax outcome | Tax inside the corporation, then again on extracting the proceeds | One capital gain, possibly sheltered by the lifetime capital gains exemption |
| Buyer's future tax cost | Fresh cost equal to the price paid, depreciable going forward | Inherited tax cost of the assets, often far below their value |
| HST on the deal | Applies unless a joint election covers the sale of the business | None; shares are a financial instrument |
| Ontario land transfer tax | Payable if real property transfers | Generally not triggered |
| Contracts, leases, licences | Must be assigned, often needing third-party consent | Stay in place, subject to change-of-control clauses |
| Diligence weight | On the assets themselves and the liens against them | On the corporation's full history, tax above all |
Read the table and the negotiating positions explain themselves. Each side's preferred structure pushes tax and risk onto the other, which is why the structure question is really a price question wearing legal clothes, and why it should be settled, at least in principle, before the letter of intent fixes a number.
Sellers push for shares because one gain beats two layers of tax
A seller's preference for shares rests on arithmetic, not stubbornness. Selling shares produces a single capital gain in the seller's own hands, and if the shares qualify, the lifetime capital gains exemption can shelter up to $1.25 million of that gain per individual, sometimes multiplied across family members who hold shares. Qualification has three tests, described roughly: the company must be a Canadian-controlled private corporation using substantially all of its assets in an active business in Canada at the sale, must have kept most of its assets active throughout the preceding two years, and the shares must have been held about two years. A company carrying surplus cash or passive investments can fail those tests, which is why sellers spend the years before a sale purifying the corporation, and why a buyer should not assume the exemption drives the seller's math until it actually applies.
An asset sale, by contrast, taxes the seller in two layers. First the corporation pays tax on the sale itself: recapture on equipment sold above its depreciated tax value, capital gains on appreciated property, and gains on goodwill, which are taxed partly like capital gains with the untaxed half crediting the capital dividend account. Then the after-tax proceeds sit inside the corporation, and extracting them to the shareholder is a second taxable event, softened only partly by the capital dividend account and by planning the extraction over time. The combined bill varies with the asset mix, but it is routinely a large enough gap that a rational seller demands a higher price for an asset deal than a share deal for the very same business. When a seller readily accepts an asset structure at no premium, ask why; sometimes the honest answer is that the shares would not qualify for the exemption anyway, and sometimes it is that the corporation carries history they would rather keep.
Buyers push for assets for fresh tax cost and a clean slate
The buyer's case for an asset purchase is equally concrete: you deduct what you paid, and you inherit almost nothing. The price allocated to equipment, leaseholds and goodwill becomes fresh capital cost in your corporation, generating capital cost allowance deductions for years; since 2017 even purchased goodwill is depreciable property. In a share purchase there is no step-up. The corporation keeps its old, usually low, tax cost in everything it owns, so you effectively buy the seller's deferred tax bill along with the assets, and your after-tax cash flow is weaker for the same price paid.
The clean slate matters at least as much. In an asset deal, liabilities you did not expressly assume stay behind: the old lawsuit, the unremitted HST, the payroll audit that has not happened yet, the aggressive expense positions from six years ago. In a share deal all of it comes with the company, including exposures no diligence can fully surface, because CRA can reassess past years long after closing and the corporation you now own answers for them. That risk is manageable, buyers manage it in every share deal signed, but it is managed with work: deeper due diligence, tax representations that survive closing, indemnities from a seller who must remain worth suing, and holdbacks or escrows that give the indemnity teeth.
What the buyer gives up in an asset deal is continuity. Every contract, lease and licence must be assigned to your corporation, and many require the other party's consent, which takes time and hands leverage to landlords and key customers at the worst moment. Some things barely transfer at all: certain permits, vendor numbers, a lender relationship, accumulated WSIB experience ratings. A business whose value lives in a handful of assignable assets fits an asset deal naturally; a business whose value lives in a web of contracts and registrations leans toward shares no matter what the tax math prefers.
The mechanics that ride along: HST, land transfer tax, employees, receivables
Four ride-along mechanics move real money and belong in the decision, not the closing checklist. First, HST: a sale of assets is a taxable supply, but where a buyer acquires all or substantially all of the assets needed to carry on the business, the parties can jointly elect under section 167 to have no HST apply to the sale. The election has conditions and must actually be filed; get it wrong and the buyer finances a large HST payment and waits to recover it. A share sale avoids the issue entirely, since shares are a financial instrument with no HST.
Second, land transfer tax: if the deal includes real property and the structure is an asset purchase, the transfer of the property triggers Ontario land transfer tax on its value, a cost a share purchase generally avoids because the property never changes owners, the corporation that owns it does. On a deal with a valuable building attached, this single item can be one of the largest structure-driven costs, and it points many property-heavy deals toward shares. Third, employees: in Ontario, employment standards treat service as continuous when a business is sold and the buyer keeps the staff, even in an asset deal, so years of service for termination, severance and vacation entitlements carry over. The buyer who assumed an asset purchase meant a fresh start on employment obligations has mispriced the deal.
Fourth, the smaller allocations that reward attention. In an asset deal the purchase price must be allocated across the assets, and the allocation is adversarial in miniature: the buyer wants weight on quickly depreciable assets, the seller wants weight on goodwill and capital items, and both sides file consistently once it is agreed. Receivables bought in an asset deal deserve their own joint election, which preserves the ordinary treatment of later bad debts for the buyer instead of leaving them as capital losses. None of these mechanics decides the structure alone; together they regularly move the comparison by more than the headline negotiation does.
The price bridges the structures, and diligence prices the risk
Because the structures split the tax differently, the same business honestly carries two different prices, and sophisticated deals negotiate the bridge openly. The logic runs: start from the seller's after-tax proceeds under a share sale with the exemption, compute what price an asset sale would need to leave the seller in the same place, and compare that premium against what the buyer's step-up and clean slate are worth in after-tax terms. Sometimes the buyer's benefits exceed the seller's cost and an asset deal at a premium makes both sides better off; sometimes the exemption is the largest number on the board and shares win; occasionally advisors build hybrid structures that capture pieces of both, at a complexity cost that only mid-sized and larger deals justify.
Whatever bridge is struck, the residual risk gets priced in paper. A share deal leans on representations and warranties about the corporation's history, tax indemnities that survive as long as CRA can reassess, and an escrow or holdback that keeps the indemnity funded; an asset deal leans on precise schedules of what is assumed and what is not, and on liens searches that confirm the assets arrive unencumbered. The depth of financial due diligence before buying a business should follow the structure: in a share deal the tax history file is the heart of the work, in an asset deal the asset condition and title work carries more weight. And because structure, price and protections interlock, this is the stage where accountant and lawyer must work from the same findings rather than in sequence; we set out the timeline in when your CPA should become involved in an acquisition.
Financing follows the structure, and six facts decide the answer
Lenders read the two structures differently, and financing feasibility can settle a debate the tax analysis left open. In an asset deal the lender takes security directly over what you are buying, and government-backed small business loans, which finance equipment, leaseholds and real property but not shares, are available to fill gaps. In a share deal the debt is usually raised in a purchasing corporation and pushed down after closing so it sits with the business assets that service it; that is routine, but it adds structure the lender must underwrite. Either way the approval rests on financial projections showing the business covering the new debt service out of its own cash flow, with the working capital to run the first year; building that package, business financing and projections work by an Ontario CPA firm, sits alongside the structure analysis in our Business Financing Advisory work.
Strip the topic to what actually decides it and six facts remain. Whether the seller's shares qualify for the lifetime capital gains exemption, because that sets the size of the bridge. The asset mix, since real property pushes toward shares on land transfer tax while heavily depreciated equipment raises the seller's recapture cost in an asset deal. The corporation's history and how much unpriceable risk a buyer would inherit with it. Whether the key contracts and licences can be assigned at all. Each side's tax position outside the deal, including the buyer's ability to use the step-up. And what the financing requires, since the lender's security and the loan programs available differ by structure. Price those six honestly and the structure usually chooses itself.
We run this analysis for buyers and sellers across Mississauga and the GTA as defined-scope work under Strategic Projects: both structures priced side by side in after-tax terms, the bridge quantified for the negotiation, and the elections and allocations handled through closing, with the wider purchase plan laid out in buying a business in Canada. The analysis is worth the most before the letter of intent locks the structure; scope and fee come in writing after a free 15-minute discovery call.
