What is the difference between an asset purchase and a share purchase in Ontario?
When you buy a business in Ontario, you typically do it through either an asset purchase or a share purchase, and the choice affects what you acquire, what liabilities you inherit, and how the deal is taxed.
In an asset purchase, you buy specific assets — inventory, equipment, customer lists, contracts, intellectual property — and you leave behind the corporation shell and, usually, most of its liabilities. You pick what you want. This is generally preferred by buyers because you start relatively clean.
In a share purchase, you buy the shares of the corporation itself. You become the new owner of the entity, including all its history, contracts, and liabilities — disclosed and undisclosed. Sellers often prefer share deals because the sale of shares can attract more favourable tax treatment, including the lifetime capital gains exemption for qualifying small business shares.
From a due diligence standpoint, share purchases require deeper investigation into the company's legal, financial, tax, and regulatory history. Asset purchases are simpler but require careful attention to which assets transfer, whether contracts are assignable, and how employees are treated.
Key takeaways
- Asset purchases let buyers choose what they acquire and leave most liabilities behind.
- Share purchases transfer the entire corporation, including all historical liabilities.
- Sellers often prefer shares for tax reasons; buyers often prefer assets.
- Due diligence is critical in both structures but deeper in a share deal.