Share Purchase vs Asset Purchase Agreement in Ontario: Key Differences

When one business changes hands in Ontario, the first big decision is the structure. You can buy the shares of the company that runs the business, or you can buy the business assets and leave the company behind. The agreement you sign, a share purchase agreement or an asset purchase agreement, follows from that choice.

The two structures treat liabilities, tax, contracts and employees very differently, and what helps the buyer often costs the seller, or the reverse. This article explains the main differences in plain language so you can go into the negotiation informed. It is general information, not advice on your deal.

What each agreement actually sells

In a share purchase, the buyer acquires the shares of the corporation from its shareholders. The corporation itself does not change. It keeps its contracts, permits, bank accounts, employees and its history, including any debts or claims that have not surfaced yet. The seller is the shareholder, not the company.

In an asset purchase, the buyer acquires specific things from the corporation: equipment, inventory, customer lists, the name, leases and chosen contracts. The seller is the corporation, and it keeps whatever the agreement leaves out. The agreement should describe carefully what is being bought and what is being left behind.

Liabilities and contracts compared

Risk is usually the biggest practical difference. A buyer of shares inherits the company as it is, so a buyer relies heavily on due diligence and on promises and protections written into the agreement. A buyer of assets negotiates which assets to take, but some obligations can still follow the business, as the employee and tax points below show.

Whether a particular contract, lease or licence can move in an asset deal depends on its own wording, so each important one should be read before you commit to a structure.

How tax can shape the choice

Tax often explains why the parties prefer one structure. The points below are the ones that most commonly come up, and an accountant should run the numbers for your situation.

• GST/HST on an asset sale: the seller and buyer can jointly elect under Excise Tax Act s.167(1) so that no GST/HST is payable on the business assets, if the buyer acquires all or substantially all of the property needed to carry on the business. The CRA generally treats that as 90% or more, so property the buyer needs but does not acquire should be worth no more than about 10% of the value of everything needed to run the business.
• Limits on that election: it is not available where the seller is a GST/HST registrant and the buyer is not. Even with the election, GST/HST still applies to taxable services the seller will render, taxable property supplied by lease or licence, and taxable sales of real property where the buyer is not a registrant.
• Election paperwork: it is made jointly on Form GST44, and a registrant buyer must file it by the due date of its GST/HST return for the first reporting period in which tax would otherwise have been payable.
• Lifetime capital gains exemption: only individuals who are residents of Canada can claim the capital gains deduction, so it is relevant to a seller of shares rather than a corporation selling its own assets. The dollar limit changes over time, so confirm the current figure with an accountant.
• Qualifying shares: the shares generally must not have been owned by anyone other than the individual or a related person or partnership throughout the 24 months before the sale, and the corporation must be a Canadian-controlled private corporation with more than 50% of its asset value attributable to qualifying active-business assets during that period. Other tests also apply, so this is a point to confirm with an accountant.
• Land transfer tax: an asset deal that includes real property triggers Ontario land transfer tax on the land value. How it applies where shares of a land-owning corporation are sold, and whether a municipal tax also applies, depends on the facts and should be confirmed.

Employees in each structure

In a share sale the employer does not change, so employment simply continues. In an asset sale the employer changes, and that is where Ontario's Employment Standards Act, 2000 comes in.

Under s.9(1), if an employer sells a business or part of a business and the purchaser employs an employee of the seller, the employment is deemed not terminated or severed for ESA purposes, and employment with the seller counts as employment with the purchaser. The word "sells" includes leasing, transferring or disposing of a business in any other way.

• The purchaser is not obliged to hire the seller's employees, and if it does not, s.9(1) does not apply.
• Continuity still applies if the purchaser hires on lower pay, in a different role or on new terms, and the employee cannot waive it.
• Continuity does not apply if the purchaser hires the employee more than 13 weeks after the earlier of the employee's last day with the seller or the sale date.
• Service with the seller counts toward vacation entitlement, leave eligibility, termination notice and severance.
• Vacation pay that came due before the sale stays with the seller, while pay that came due after the sale generally flows to the purchaser.
• An employee may instead reject the purchaser's offer and treat the sale as a termination by the seller.

So an asset purchase does not wipe the slate clean for employees. A buyer should factor in the service history it is likely to take on.

Other points that affect the decision

• Related-party deals: if property is transferred to a spouse, a person under 18, or a person not dealing at arm's length, the transferee and transferor can be jointly and severally liable for part of the transferor's tax, up to a limit set by the Income Tax Act. This matters for family and related-company deals.
• Moving assets into a corporation first: Income Tax Act s.85(1) lets a taxpayer who transfers eligible property to a taxable Canadian corporation for consideration that includes shares make a joint election on an agreed amount, which is a tax-deferred rollover. The election is due by the earliest filing deadline of any electing party, and a late election can be accepted within 3 years if filed with an estimated penalty.
• Competition Act: for 2026, pre-merger notification applies where the target's Canadian assets or sales exceed $93 million and the parties' combined Canadian assets or sales exceed $400 million. Typical small-business deals fall well below these amounts.
• Corporate housekeeping after a share sale: Ontario corporations must report changed information to the ministry within 15 days, and a privately held corporation must update its register of individuals with significant control within 15 days of becoming aware of a change.

As a rough guide only, buyers often lean toward asset deals to limit inherited risk, while sellers who are individuals often lean toward share deals for tax reasons. Price, the type of business, and how many contracts and permits must move all affect where the parties land.

What to do next

Before you negotiate structure, get clear on what you are trying to achieve and what information you still need. A lawyer and an accountant should look at the facts together, since legal and tax consequences are tied to each other.

• List the assets, contracts, leases, permits and employees that make the business work.
• Find out which key contracts need consent to be assigned or have change-of-control terms.
• Ask an accountant to compare after-tax results for the seller and buyer under each structure, including whether the seller's shares may qualify for the capital gains exemption.
• Check GST/HST registration status for both sides before planning the s.167 election.
• Plan for employees: who will be offered jobs, on what terms, and what service they will bring.
• After closing, contact the CRA about ownership changes, review payroll accounts and make sure the correct name and SIN of each corporate director are on file.
• Have a lawyer review the draft agreement and confirm any corporate approvals needed for your corporation.

Frequently asked questions