A key question when deciding to purchase or sell a business is whether to structure the transaction as an asset purchase or share purchase.

The below is a summary of some key differences.

Share Purchase

The purchaser acquires the corporation including all assets and liabilities (including lawsuits, unpaid taxes, actual or contingent and known or unknown).
It is generally faster and less complex than an asset purchase.
There is no change in status with respect to employees
There is no HST or PST payable on the sale of shares. Tax liability is limited to Capital Gains, which receives favourable tax treatment in comparison to tax on income.

Asset Purchase

The purchaser may select which assets and accompanying liabilities, leases, contracts, employees, it wishes to purchase. Unassumed liabilities remain the responsibility of the seller. This is less risky for the purchaser.
Due diligence requirement and representations and warranties is less exhaustive compared to for a share purchase.
Assets and third party contracts need to be re-titled to the name of the purchaser.
New pension and benefits plan must be established
Purchase of certain assets are subject to PST by purchaser
An asset sale is taxed to the corporation when it sells its assets, and to the shareholder when the profits are distributed.
The seller retains the ability to use existing tax losses against the corporation.
The law firm Winnie J Luk Professional Corporation may assist with your ongoing business legal needs. Due to principal lawyer, Winnie J Luk's, close working relationship with her father, Dennis Luk, Chartered Accountant, her legal advice is often supplemented with basic finance tax information.

Disclaimer: This article does not contain legal advice and only provides general information. It is not intended to replace advice from a qualified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this article before making decisions. Use of this article does not establish a lawyer-client relationship.