Buying or Selling a Business in Ontario: Asset vs. Share Deals

If you are thinking about buying a business in Ontario — or putting one up for sale — one of the first decisions you and the other side will face is how to structure the deal. Do you buy the business's underlying assets, or do you buy the shares of the corporation that owns it? That structural choice is not just a legal formality. It affects your taxes, your exposure to the business's history, and how smoothly the transaction closes.

This article explains both structures in plain language, walks through the key considerations for buyers and sellers, and outlines what the transaction process typically looks like. It is written for Ontario small-business owners and founders who are approaching this kind of deal for the first time.

The Two Main Ways to Buy or Sell a Business

When a business is incorporated — as most Ontario businesses are — there are two ways to transfer ownership:

• Asset purchase: The buyer acquires specific assets of the business (equipment, inventory, client contracts, intellectual property, goodwill, and so on) directly from the corporation.
• Share purchase: The buyer acquires the shares of the corporation itself, stepping into the shoes of the current owner.

Both routes get you to the same destination — the buyer ends up running the business. But the path is different, and so are the legal and tax outcomes.

Asset Purchases: Choosing What You Take

In an asset purchase, the buyer and seller agree on which assets and liabilities the buyer will take on. The seller's corporation remains intact; it does not transfer to the buyer.

The appeal of a clean slate

A key attraction of the asset deal for buyers is the ability to leave unwanted items behind. The buyer can say: "I want the equipment, the customer list, and the trade name — but I am not taking on that outstanding supplier dispute or the regulatory fine from two years ago." This selective approach gives the buyer meaningful protection against the corporation's prior history.

That said, the "clean slate" is not absolute. Certain obligations can follow the business regardless of how the deal is papered. Under Ontario's Employment Standards Act, when a business is sold as a going concern, employees' length of service may carry over to the new owner — meaning the buyer inherits those employment relationships and the obligations attached to them. Environmental liabilities can similarly attach to specific property or operations even after an asset transfer. Your lawyer will identify these exposures during due diligence.

Retitling and HST

Because the buyer is not acquiring a corporation, individual assets must be formally transferred. Vehicles need to be re-registered. Real property requires a deed. Contracts and leases typically need the counterparty's consent to assign them to a new owner. This can add time and extra negotiation to the closing process.

Tax is another consideration. The sale of certain business assets — particularly tangible personal property and real property — can attract Harmonized Sales Tax (HST) in Ontario. Whether HST applies and how it can be minimized depends on the nature of the assets and how the deal is structured. An accountant and a lawyer working together on the file can help you plan around this.

Share Purchases: Buying the Whole Package

In a share purchase, the buyer acquires the shares of the corporation. From the moment the deal closes, the buyer owns the legal entity — all of its assets, contracts, employees, permits, and liabilities, known and unknown.

The appeal of simplicity

One practical advantage of a share deal is that contracts, leases, and licences typically do not need to be formally assigned or consented to by third parties. The corporation remains the same legal entity; it just has a new shareholder. That can make closing faster and reduce the risk that a landlord or key supplier withholds consent at the last moment.

The liability trade-off

The flip side is that the buyer steps into everything — including things the seller may not have fully disclosed, or may not even know about. Hidden tax liabilities, undisclosed employee claims, outstanding regulatory fines — these all travel with the corporation. This is precisely why thorough due diligence matters even more in a share deal.

Buyer vs. Seller: Different Preferences, One Negotiation

Buyers and sellers often come to the table wanting opposite structures, which is normal and worth understanding up front.

Buyers tend to prefer asset deals. Acquiring selected assets limits exposure to the company's history and often provides a tax advantage: the buyer can set the cost base of the acquired assets at the purchase price, which can produce better depreciation claims going forward.

Sellers tend to prefer share deals. The main reason is the Lifetime Capital Gains Exemption (LCGE) under the federal Income Tax Act.

If you are selling shares of a Qualifying Small Business Corporation (QSBC) — a private corporation controlled by Canadian residents that meets certain tests related to asset composition and holding periods — eligible shareholders may shelter a significant portion of the capital gain on the sale from federal tax. As of writing, the LCGE provides a meaningful exemption for qualifying share sales, and the specific dollar limit is adjusted periodically. Verify the current figure with your accountant or the Canada Revenue Agency (CRA) before building it into your planning. For many Ontario business owners, the LCGE is one of the most valuable tax benefits they will ever access — and it is only available on a share sale, not an asset sale.

Because sellers want shares and buyers want assets, deals are often negotiated somewhere in the middle. A seller who insists on a share deal may accept a lower headline price to account for the buyer's additional risk. A buyer who demands an asset structure may need to offer more.

Due Diligence: Knowing What You Are Buying

Before any deal closes, the buyer should conduct due diligence — a systematic investigation of the business to verify what is being sold and to surface any issues before they become the buyer's problem.

Key areas to review typically include:

• Financial statements: reviewed or audited financials, corporate tax returns, and accounts receivable aging
• Contracts: customer agreements, supplier contracts, leases, and any change-of-control provisions that could be triggered by the sale
• Employment: employee agreements, pending or threatened claims, and payroll records
• Litigation: any active or threatened legal proceedings involving the business
• Intellectual property: trade names, trademarks, software licences, and ownership documentation
• Permits and licences: whether they transfer automatically and whether any regulatory approvals are required
• Tax compliance: HST filings, payroll remittances, corporate returns, and any outstanding CRA disputes

The scope of due diligence depends on the size of the deal, the industry, and whether you are acquiring assets or shares. Your lawyer will help you determine which areas carry the most risk for this particular business.

Common Deal Documents and Structure

A business acquisition typically moves through several stages:

1. Letter of Intent (LOI): A mostly non-binding document that sets out the key commercial terms — purchase price, deal structure, timeline, and any exclusivity period — before the parties invest heavily in legal fees and due diligence.
2. Purchase Agreement: The binding contract. In an asset deal this is an Asset Purchase Agreement; in a share deal, a Share Purchase Agreement. It describes exactly what is being bought, at what price, and on what conditions.
3. Representations and Warranties: Statements by the seller (and sometimes the buyer) about the state of the business or the corporation. If a representation turns out to be false after closing, the buyer may have a claim for damages.
4. Holdbacks and Adjustments: It is common to hold back a portion of the purchase price for a period after closing to cover warranty claims that arise. Purchase price adjustments are also standard — for example, adjusting for changes in working capital between signing and the closing date.

A lawyer experienced in business acquisitions can negotiate the purchase agreement, conduct or coordinate due diligence, advise on deal structure, and make sure nothing important falls through the cracks between LOI and closing.

Frequently asked questions