Should I Buy the Assets or the Shares of a Business in Manitoba?

When you buy a Manitoba business you are usually buying one of two things: the business assets, or the shares of the corporation that owns them. The choice affects how much risk you inherit, how the tax works, and how much paperwork there is.

Buyers and sellers often want different structures. This article sets out the main differences so you can talk through them with a lawyer and an accountant.

This article covers the law of Manitoba.

The basic difference

In an asset purchase you buy selected assets such as equipment, inventory, contracts and goodwill, and the seller keeps the company. In a share purchase you buy the company itself, with its history, contracts and liabilities.

Manitoba's bulk sale rules apply to asset sales only. A sale of shares or partnership interests is not a sale of business assets that comprises a bulk sale, and corporate amalgamations are not treated as asset sales.

Risk and liabilities

An asset deal generally lets you leave unwanted liabilities behind, but not all of them. An asset buyer who does not obtain the duplicate bulk sale certificate is liable for the seller's tax debt as at the date of sale, including amounts assessed later for earlier transactions. A buyer who obtained the certificate is protected from a tax debt that existed when it was issued.

Employees are another point. For the minimum standards in Divisions 2 to 5, 9 and 10 of Part 2 of The Employment Standards Code, when a business is sold or otherwise disposed of so that control passes to another person, employment is deemed continuous and uninterrupted. This is not a general rule for every employment entitlement.

In a share deal the company keeps its past obligations, which you take on indirectly as the new owner. This is why due diligence is especially important in a share purchase. Searches such as the Personal Property Registry search by the debtor's name are part of that review.

Tax differences

The GST44 election has limits. It is not available if the seller is a GST/HST registrant and the buyer is not, and the buyer must be able to keep operating the business with the acquired property. GST/HST still applies to certain items, such as taxable services by the seller, taxable leases or licences, and, if the buyer is not a registrant, taxable real property. The election must be filed on or before the day the buyer's GST/HST return is due for the first reporting period in which GST/HST would otherwise have been payable.

For the seller's lifetime capital gains exemption on a share sale, a qualified small business corporation share must not have been owned by anyone other than the individual or related persons throughout the 24 months before the determination time, and the corporation must be a Canadian-controlled private corporation whose assets are mostly (more than half) qualifying assets. An asset sale by the corporation does not give the shareholder the exemption directly, which matters to a seller who wants the lifetime capital gains exemption on a share sale. How this applies depends on your situation, so it is worth confirming with an accountant.

Paperwork and approvals

• Bulk sale certificate: before an asset sale the seller must apply to the director (Taxation Division) for a certificate showing no tax debt or satisfactory payment arrangements. The director issues it in duplicate and the seller must give one to the buyer.
• Application: it must include the sale agreement with a breakdown of the price by asset class, and the Taxation Division issues the certificate with no fee.
• Shareholder vote: a corporate seller selling all or substantially all of its property outside the ordinary course of business needs shareholder approval. It is adopted when holders of each class or series entitled to vote approve it by special resolution.
• Dissent rights: a shareholder may dissent and claim fair value, subject to the Act and any unanimous shareholder agreement.
• Competition notification: it is generally required when the target's Canadian assets or related revenues exceed $93 million and the parties' combined Canadian assets or revenues exceed $400 million, and most small Manitoba purchases are well below these.
• Foreign investment: a non-Canadian buyer of a Manitoba business below the review thresholds must still file a notification under the Investment Canada Act, no later than 30 days after implementation of the investment.

What to do next

• Ask the seller whether they prefer an asset or share sale and why.
• Have an accountant compare the tax results for both sides.
• List the contracts, licences and leases you need, and ask whether they can be transferred.
• Plan for the bulk sale certificate if you are buying assets.
• After closing, tell the CRA tax services office about owner, partner or director changes; a new business number may be needed.

Frequently asked questions