Asset Purchase vs Share Purchase of a Business in New Brunswick

When a New Brunswick business changes hands, the first big question is not the price. It is what exactly is being sold. You can buy the assets of the business, such as equipment, inventory and customer contracts. Or you can buy the shares of the company that owns them.

The two routes can look similar on a sign at the door, but they carry different debts, taxes and approvals. This article explains the main differences in plain terms so you can ask better questions before you sign anything.

This article covers the law of New Brunswick.

What actually changes hands

In an asset purchase, the buyer picks the property it wants and the seller's company keeps the rest, including the company itself. In a share purchase, the buyer steps into the shareholders' place and the company continues exactly as it was. A share sale is a deal between the shareholders and the buyer.

Debts and claims that come with the business

Shareholders are not, as shareholders, liable for the corporation's liabilities, acts or defaults, apart from an exception in section 99 of the Business Corporations Act. For a buyer of shares, that protects the buyer personally, but the company itself still owes whatever it owed before. The buyer takes it with its past liabilities inside.

In an asset purchase, which debts and obligations the buyer ends up with depends on the deal and the facts, so it is worth confirming with a lawyer. Secured lenders are one clear issue. Under the Personal Property Security Act, a lender's registered claim over equipment, inventory or receivables can stay attached to assets a buyer acquires. The protection for buyers of goods in the seller's ordinary course of business generally does not help someone buying a whole business's equipment.

Anyone may search the PPSA Registry and obtain a printed result, which is evidence of registration absent evidence to the contrary. Each registration lasts for the period stated in the financing statement, so you need to read the search result itself.

Tax and transfer costs that shape the choice

Sellers often prefer a share sale because the lifetime capital gains exemption can apply to a gain on qualified small business corporation shares owned by an individual, but not to an asset sale by the corporation. The shares must be shares of a Canadian-controlled private corporation, and more than 50% of the fair market value of its assets must be attributable to active business assets or qualifying connected-corporation shares or debt during the relevant periods. The shares also must not have been owned by anyone outside the individual's related group throughout the 24 months before the determination time.

CRA states the exemption is $1,250,000 for dispositions in 2025, and the limit is indexed to inflation, so the current figure may differ. Whether a particular company qualifies is a detailed question for an accountant.

Land matters too. Real property transfer tax is 1% of the greater of the consideration or the assessed value for deeds tendered on or after April 1, 2016, and it is charged when a deed is registered, so it arises if land or buildings are transferred in an asset sale. A share sale does not register a deed. Some instruments are exempt, such as a lease for a term of less than twenty-five years.

GST/HST also needs attention. The buyer and seller may jointly elect so that no GST/HST is payable on the sale of a business or part of it, if the buyer acquires all or substantially all the property reasonably necessary to carry it on. Even where the election applies, tax is still payable on taxable services to be rendered by the seller, taxable leases or licences, and taxable sales of real property where the buyer is not a registrant. The election cannot be made where the seller is a registrant and the buyer is not.

Approvals and employees

A sale, lease or exchange of all or substantially all of a corporation's property outside the ordinary course of business requires shareholder approval by special resolution of each class or series entitled to vote. A shareholder who disagrees can dissent and ask to be paid the fair value of the shares, by sending written objection before the vote and notice of dissent within 20 days after notice of adoption. Some transfers do not need this approval, including leases of three years or less and transfers within a corporate group.

How employees are affected depends on the structure and the facts, so it is worth confirming with a lawyer. When a business is sold in any manner, an employee's period of employment is deemed to be with the purchaser, and continuity is deemed unbroken. This applies to asset sales, so an asset buyer inherits employees' service for notice and similar entitlements.

What to do next

Which structure suits you depends on who you are in the deal and on the facts of the business. Before you settle on one, work through these steps.

• Decide whether you are buying or selling, and write down what you want the deal to include.
• Ask the seller for a list of assets, debts, leases, contracts and employees.
• Run a PPSA Registry search on the seller's name before closing.
• Ask an accountant whether the seller's shares might qualify for the capital gains exemption.
• Check whether land or buildings are part of the deal, and what that means for transfer tax.
• Have a lawyer review the structure, the shareholder approvals and the purchase agreement before you sign.

Frequently asked questions