Asset Purchase vs Share Purchase: Which Is Right for Your Ontario Business Deal?

When you are buying or selling a business in Ontario, one of the first decisions you will face is whether to structure the deal as an asset purchase or a share purchase. This single structural choice ripples through your tax bill, your liability exposure, your employees' entitlements, and the ease of transferring contracts. Understanding the difference before you sign a letter of intent can save both sides a great deal of grief — and money.

This article explains the mechanics of each structure, the typical positions buyers and sellers take, and the legal considerations you need to weigh with a lawyer and an accountant.

What Is an Asset Purchase?

In an asset purchase, the buyer acquires specific assets of the business — equipment, inventory, intellectual property, goodwill, customer lists, leases — rather than the company itself. The corporation that previously owned those assets stays with the seller (along with any liabilities that belong to it).

What buyers choose assets

Buyers generally prefer asset deals because:

• Clean liability start. You are not buying the company's history. Unknown tax liabilities, lawsuits, or environmental issues stay with the seller's corporation.
• Step-up in cost base. You can allocate the purchase price to depreciable assets and write them down from the new, higher value — a meaningful tax benefit in future years (confirm with your accountant).
• Cherry-picking. You can negotiate to exclude assets you don't want (old litigation, a specific lease, etc.).

What sellers dislike about asset deals

Sellers typically prefer share deals because an asset sale can be less tax-efficient. The proceeds flow into the corporation, then must be paid out again as dividends or salary — creating a potential double layer of tax. There is also more complexity: every asset must be transferred individually, and third parties (landlords, lenders, government agencies) may need to consent.

What Is a Share Purchase?

In a share purchase, the buyer acquires the shares of the corporation that operates the business. The corporation — with all its assets, contracts, and liabilities — comes with the deal.

Why sellers prefer shares

• Capital gains treatment. Individual shareholders may be able to shelter up to a lifetime limit of capital gains using the Lifetime Capital Gains Exemption (LCGE) on the sale of qualifying small business corporation shares. The limit is $1,250,000 for dispositions on or after June 25, 2024, rising to $1,275,000 for 2026 as indexing resumes. Verify the current amount with your accountant before relying on it.
• Simpler transfer. Contracts, leases, and licences stay in the corporation's name. No third-party consents are usually needed unless a contract has a change-of-control clause. Regulated businesses are the exception. Licences, permits and professional corporation certificates often require the regulator to be notified, or to give approval, when ownership changes — sometimes within a fixed number of days of the change.

Why buyers are cautious about shares

Buyers inherit everything — including hidden liabilities. This is why thorough due diligence and strong representations and warranties (backed by indemnities) are central to every share purchase agreement. Buyers frequently negotiate escrow holdbacks or purchase price adjustments to account for risks discovered after closing.

Comparing the Two Structures: A Quick Reference

Hybrid Deals and the "Bump" Election

In some deals, the parties agree on a share purchase but the buyer wants the tax benefit of an asset step-up. There is a mechanism for this — the “section 88 bump” — but it is far narrower than it sounds. It reaches only non-depreciable capital property, such as land and shares. Depreciable property, inventory and goodwill are all excluded, and goodwill has been treated as depreciable property since 2017. It also requires a corporate buyer that acquires control of the company and then winds it up or amalgamates with it. For a typical small business, where most of the value sits in equipment and goodwill, the bump usually achieves nothing. These provisions are complex — this is firmly territory for a tax accountant or tax lawyer, not a general summary. If this matters to your deal, raise it early.

Which Structure Will Your Deal Use?

There is no universal answer. It depends on:

1. The seller's personal tax situation — is the LCGE available and valuable?
2. The buyer's risk tolerance — how clean is the corporation's history?
3. The nature of the assets — are key contracts assignable?
4. Employee considerations — what obligations exist under the Employment Standards Act, 2000?
5. Lender requirements — does the buyer's financing dictate the structure?

Most deals involve negotiation between buyer and seller over the structure, sometimes with a price adjustment to compensate whichever side gives ground on tax.

Frequently asked questions