Share Purchase vs Asset Purchase: What Is the Difference in Alberta?

When an Alberta business changes hands, one of the first decisions is structure. Will the buyer purchase the shares of the company that owns the business, or will it purchase the business assets? The choice shapes who signs, what transfers and what risks come along.

This article explains the difference in plain terms and points out where tax and financing can pull a deal toward one structure. Because every deal is different, a lawyer and an accountant should confirm which structure fits yours.

This article covers the law of Alberta.

The basic difference

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, its history and its debts, and only its owners change.

In an asset purchase, the buyer acquires specific property of the business, such as equipment, inventory, customer lists, goodwill and the right to use the name. The seller corporation remains in place with whatever the buyer did not take.

Who the parties are and what moves

An asset purchase lets a buyer choose what to take, which can limit surprises. A share purchase is often simpler in practice because the company carries on without the need to transfer each item, but the buyer inherits what the company already owes or has done.

GST and the business-assets rule

GST is a major reason asset deals need care. Without an election, each property and service in a business sale is treated as a separate supply with consideration allocated to it, so GST at 5% in Alberta can apply to the taxable parts. Alberta has no provincial sales tax.

The business-assets rule applies where a supplier sells a business or part of one and the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on that business. In that case, a joint election by the supplier and the recipient, in the prescribed form, means no tax is payable on the supplies under the agreement. The CRA form is GST44.

There are limits. The election is not available where the supplier is a registrant and the recipient is not. Even with a valid election, tax is still payable on a taxable service the supplier will render, on a taxable lease, licence or similar supply of property, and, where the buyer is not a registrant, on a taxable sale of real property. A registrant buyer must file the election with the Minister by the filing deadline for its first reporting period in which tax would otherwise have become payable.

Financing and due diligence

Structure can change how a purchase is funded. The Canada Small Business Financing Program can finance the eligible assets of an existing business, capped at the lower of the purchase price or the appraised value of those assets. It does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded this way. Eligibility is generally limited to businesses with gross revenues of $10 million or less, and farming businesses are excluded.

Either way, check what you are buying. Alberta Corporate Registry searches can show the registration date, owners, directors and legal addresses. Personal Property Registry searches include business debtor name searches, and results can be an exact match, inexact match, no match, or both exact and inexact matches.

What to do next

• Decide with your accountant whether tax favours one structure.
• Confirm whether you or the other side are GST registrants.
• Check whether your lender will fund a share purchase or only assets.
• List contracts, leases and permits that may need consent in an asset deal.
• Order registry searches on the company and the business name.
• Ask a lawyer to confirm the structure before signing a letter of intent.

Frequently asked questions