Sellers tend to prefer Share sales while Buyers lean toward Asset sales. Here are five things to consider when making this quite important decision. Outside Professional services will be required for legal, tax and possibly other questions. Make sure your trusted Advisors have specific business selling experience.

1. Avoiding Liability Issues
In a Share sale, all of the assets and liabilities of the Sellers' business remain with the company. Subject to agreed price adjustments or indemnifications the Seller gets to leave responsibility behind them from any liabilities and the Buyer agrees to take on the responsibilities.

An Asset sale allows the Buyer to carefully select which assets they want to purchase and which liabilities will be assumed. In addition, and by law, the Buyer becomes liable for environmental contamination issues and any union employees.

2. Union and Non-Union Employees 
In an Asset sale, non-union employees do not need to be taken on by the Buyer. To avoid wrongful dismissal claims from the employees, the Seller usually will require a Buyer to offer new contracts to most if not all employees on terms that are similar or identical to their existing contracts including a recognition of prior service.

In a Share sale, the Sellers' employees remain employed by the company, unless a change of ownership triggers rights under the employment agreements of specific employees such as senior executives. Therefore, unless the Seller terminates certain employees and pays severance pay before closing, the Seller retains all of the employees, even those the Buyer doesn't wish to employ.

3. Reduced Level of Complexity
Share sales are usually less complex than Asset sales. An Asset sale will require transfer documentation for all of the assets being transferred including real property, permits, licences, leases, contracts, equipment and vehicles, intellectual property, etc.

By contrast, under a Share sale, all of the assets of the Sellers' business remain with the company. The only required transfer is of the shares of the company itself and possibly an assignment of shareholder loans.

Be aware, an Asset sale may possibly trigger the need to obtain more third party consents to the transfer of the assets. A more time consuming and expensive process than a Share sale, where identifying and dealing with any change of control provisions in contracts, leases, licences and permits would be less of a burden. In addition, certain assets, such as government licences and permits, may not be assignable.

4. Tax Considerations – Share Sale (Please check with your trusted Advisors for tax and other appropriate laws within your own province/state/country.)
The proceeds of a Share sale (above the Seller’s adjusted cost base) are taxed as capital gains, meaning only 50% is included as income.

If certain conditions are met, a $883,384 lifetime capital gains exemption indexed to inflation is available to Canadian residents who sell shares of a qualified small business corporation. This applies to a sale in the year 2020 and could change in the future.

A corporate Seller may be able to reduce its taxable gain by causing their company to pay a non-taxable inter-company dividend from “safe income” (that portion of retained earnings attributable to earnings reported for income tax purposes) before the sale. The purchase price will be reduced accordingly.

A Buyer might prefer a Share transaction in order to take advantage of the Sellers company’s non-capital tax-loss carry forwards (i.e. business losses) that can be applied against future income.

A Share purchase allows a Buyer to avoid paying sales and property transfer taxes on purchased assets. These taxes can be significant – property transfer tax is 1% on the first $200,000 in value of the real estate and 2% thereafter. Sales tax is 7%, although an exemption may be available in respect of certain assets such as production machinery and equipment. (Please check your local and national laws with a professional.)

5. Tax Considerations – Asset Sale (Please check with your trusted Advisors for tax and other appropriate laws within your own province/state/country.)
A Seller will usually desire the purchase price to be allocated to minimize the recapture of capital cost allowance previously deducted on depreciable property.

A Buyer will typically want to allocate as much of the purchase price as possible to depreciable property so that it can ‘step up’ the value of assets to their fair value resulting in higher tax deductions for depreciation expenses in the future.

Lastly, a Buyer will be required to pay property transfer tax on real property and buildings (including permanently affixed equipment) and sales tax on equipment and inventory subject to all available exemptions.

​You need to determine (with appropriate counsel) advantages and disadvantages of Asset vs Share sale for you.

Exercise - Tasks And Questions

Outside Professional services will be required for legal, tax and possibly other questions. Make sure your trusted Advisors have specific business selling experience. Start interviewing current and potential professional services Advisors. Make a list of candidates.

Legal Advisors

Tax Advisors

Other Advisors

Asset Sale Advantages To Me

Asset Sale Disadvantages To Me

Share sale Advantages To Me

Share Sale Disadvantages To Me

Disclaimer: We are not legal or financial advisors and make no claims about the accuracy of our opinions. Please make sure you work with your trusted Advisors to determine tax and legal implications of an Asset vs Share sale in your country.

Seriously, how long are you planning to wait? Or is waiting your plan?

As a boomer age business owner, selling or transitioning your company is likely top of mind. The story you're telling yourself and your trusted advisors may sound like this: "I know I have to do something ... it's so much work...timing isn't right...my children will take over...l have a partner" etc.

Your future, and the well being of many other people, depends on the steps you take over the next few years. You know you need to do something now or it might be too late. Protecting what you have built and positioning for the future are the priorities. The clock is ticking, ready or not.

When it comes to selling your business. If you don't move forward, the decision will be made for you.

Case 1 - Business relies heavily on importing custom product from China. Sales are totally based on travel and tourist industry. I wonder if the recent events will impact this company and its' chances for success in a sale.

Case 2 - Owner never made it to our second meeting. Went from healthy and excited about the future of his transition the first time we met to one week later no longer able to work. Potential sale of the company is not really viable.

Case 3 - Successful small distribution company has afforded the Owner a nice lifestyle. Unfortunately it is too small for anyone to be interested in buying and revolves too much around the Owner. Owners plan is to wait until they're ready to sell and then grow it and remove themselves from a central role. Good luck!

Case 4 - While contemplating the eventual sale of the business over the past several years the Owner is now faced with a government expropriation of his building and business. Unfortunately the government works in mysterious ways and will move ahead when they feel like it and at their convenience. Oh and the government will pay what they think is reasonable for the business. So living and running a business in limbo and no definitive idea of how much the Owner will be compensated or how long it will take.

Health, the economy, competition or industry changes will dictate what happens next. At that point all bets are off. You've lost control and you didn't get into your own business just so you could give up control.

Don't fall into the unrealistic timing trap. It will likely take 3-5 years from start to finish to be fully out of the business. You need to find a buyer, do the deal and then transition. 
Sometimes it can be done in less time if the circumstances require but typically it is a longer term proposition. At this point you don't know and it would be wise to prepare for the worst.

Right now you may not know exactly what you'll do after the business is sold. It's ok, that's part of the journey. You didn't have all the answers when you started or took over the company either.

Likely 80% of your wealth is tied up in your single largest asset - the business. Most owners tend to have inflated opinions on the value of their company. Wouldn't it be more prudent to find out the real story.

Take your first step today and see what your business might be worth. And more importantly find out what you have to do to get it.

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SELLING YOUR BUSINESS?
​Ask yourself these 20 questions. Be completely honest. It's a quick score and an easy way to see how a Buyer will perceive your company.