- In an asset sale the buyer purchases chosen business property, while in a share sale the buyer takes the company with its history and liabilities.
- An asset sale needs the price allocated to each asset at fair market value, with the balance going to goodwill.
- Staff, PST and GST/HST can be treated differently depending on how the deal is structured, so the choice is worth settling with a lawyer and accountant early.
If you are buying or selling a business in British Columbia, one of the first decisions is how the deal is built. Either the buyer purchases the business's assets, or the buyer purchases the shares of the company that owns the business.
The two structures can lead to very different tax results, different risks and different paperwork. This article explains the difference in plain terms. Your own facts matter a great deal, so treat it as a starting point for a conversation with a lawyer and an accountant.
This article covers the law of British Columbia.
What actually changes hands
In an asset sale, the buyer purchases the property of the business, such as equipment, inventory and goodwill. The seller's company stays with the seller, along with whatever the buyer does not agree to take on.
In a share sale, the buyer purchases the shares from the shareholders, and the company itself carries on unchanged. The buyer takes the company with its history and liabilities.
- Asset sale: you buy a defined list of things.
- Share sale: you buy ownership of the whole company.
- Either way, the contract sets out exactly what is included and what is not.
How an asset sale is structured
On an asset purchase, the price must be allocated to each asset at fair market value, with the remaining balance attributed to goodwill. Since January 1, 2017, goodwill is depreciable property in CCA Class 14.1, claimed at 5%. The allocation should match what the vendor reports.
PST needs attention. On a PST asset sale, goodwill, accounts receivable, franchise fees, inventory, real property and shares of a business are non-taxable, and inventory is exempt if the buyer gives a PST number or a Certificate of Exemption – General (FIN 490). The parties cannot raise the goodwill price and lower the taxable-asset prices to avoid PST. A buyer without a PST number must self-assess PST on taxable items using the Casual Remittance Return (FIN 405).
The PST publication tells a buyer to obtain a PST clearance certificate before buying a business, and without one the buyer is liable for an amount equal to any outstanding amount owed by the seller. A bulk transaction includes buying substantially all (more than 90%) of a collector's inventory in B.C..
For GST/HST, if the buyer acquires all or substantially all (at least 90%) of the property needed to carry on the business, the parties may jointly elect (Form GST44) so no GST/HST is payable on the sale. The election is unavailable where the supplier is a registrant and the recipient is not, and even with the election, GST/HST can still apply to certain services, leases and licences, and to sales of real property when the buyer is not a registrant.
Staff are affected too. If all or part of a business is disposed of, an employee's employment is generally deemed continuous and uninterrupted under the Employment Standards Act, so the buyer takes on the seller's obligations to employees who stay. If the seller terminates employees before the sale, the seller owes their outstanding wages and compensation and the purchaser is not liable. Where a trustee in bankruptcy sells the business as a going concern, the buyer is not liable for wages owed before the bankruptcy and the employees' prior service is not treated as continuous.
How a share sale is structured
In a share purchase, a change in share ownership does not change the tax values of the corporation's assets, and share purchases are generally not subject to GST/HST. Because the company is the same legal entity, the buyer inherits its past along with its assets.
For a seller, a share sale can matter because of the lifetime capital gains exemption on qualified small business corporation shares. The CRA lists it at $1,250,000 for dispositions after June 24, 2024. Whether your shares qualify depends on tests that an accountant should confirm.
A corporate search on a BC company produces a company summary and Notice of Articles showing current directors. A change of owners may also require a new CRA business number and program accounts, and for corporations the CRA needs the correct name and social insurance number of each director.
Side-by-side comparison
| Issue | Asset sale | Share sale |
|---|---|---|
| What the buyer gets | Chosen assets, with the balance of the price to goodwill | The company with its history and liabilities |
| Tax values of assets | Price allocated at fair market value | Unchanged by the change in ownership |
| GST/HST | A joint election may be available | Generally not subject to GST/HST |
| Staff | Employment deemed continuous for employees who stay | Depends on the facts; ask a lawyer |
What to do next
Raise structure early, before price is fixed, because it changes both the tax outcome and the risk each side carries.
- Ask an accountant to compare the tax result of each structure for both buyer and seller.
- Ask a lawyer which liabilities each structure leaves with the buyer.
- Decide how the price will be allocated and make sure the buyer and seller report it the same way.
- Check PST clearance and GST/HST election steps before closing.
- Confirm how staff, the lease and licences will be handled.
Frequently asked questions
Is a share sale simpler than an asset sale?
The company stays the same, so there is no need to transfer each asset one by one. But the buyer takes the company with its history and liabilities. That trade-off is why many buyers look closely at the company before choosing this route.
Does GST/HST apply to a share sale?
Share purchases are generally not subject to GST/HST. Asset sales can be different, and a joint election may avoid GST/HST if the buyer acquires at least 90% of the property needed to carry on the business.
Do employees keep their service if I buy assets?
If all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Employment Standards Act, so the buyer takes on obligations to employees who stay. There are exceptions, such as where the seller terminates employees before the sale.
Who decides whether it is an asset or share sale?
The buyer and seller negotiate it, and each often prefers a different structure for tax and risk reasons. A lawyer and accountant can explain what each choice would mean for you.
Sources
- gov.bc.ca – PST: Buying and selling a business — www2.gov.bc.ca
- gov.bc.ca – ESA Interpretation Guidelines, Part 11, Section 97 — www2.gov.bc.ca
- Excise Tax Act, s.167 — Justice Laws (federal)
- CRA – Buying a business — canada.ca
- CRA – Buying an existing business — canada.ca
- CRA – Line 25400 Capital gains deduction — canada.ca
- gov.bc.ca – BC Registry Services — www2.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,358.88, tax included. Third-party fees are extra.