Should I sell my Ontario business as a share sale or an asset sale?
The main difference is who sells: in a share sale you sell your shares of the corporation, and in an asset sale the corporation sells its business assets. That choice affects your tax, your contracts, your employees and what a buyer will ask for. The lifetime capital gains exemption is available only to an individual selling qualifying shares, not to the corporation when it sells assets.
In an asset sale, the buyer and seller may jointly elect so that no GST/HST is payable on the transfer, using CRA Form GST44, if the buyer acquires all or substantially all of the property reasonably needed to carry on the business. That election is not available where the seller is a GST/HST registrant and the buyer is not. When a corporation sells all or substantially all of its property outside the ordinary course, shareholders must approve it, and dissenting shareholders may seek fair value.
If the buyer employs your staff, their length of service with you flows through to the buyer. That does not happen if the buyer hires them more than 13 weeks after the earlier of their last day or the sale. A lawyer and accountant can confirm which structure fits your facts.
Key takeaways
- The lifetime capital gains exemption can apply when an individual sells qualifying shares, but not to a corporation that sells its own business assets.
- In an asset sale, a GST44 election may remove GST/HST on the transfer, but tax can still apply to services, leases and some real property.
- A sale of all or substantially all of a corporation's property needs shareholder approval by special resolution, which means at least two-thirds of the votes cast.
- If you take back a loan from the buyer, registering your security under the Personal Property Security Act matters because an unperfected interest is not effective against a trustee in bankruptcy.