- In a share purchase the company stays the same legal entity, while in an asset purchase the buyer's own entity sets up its own registrations and CRA accounts.
- How seniority, vacation and severance are treated depends on the deal structure and on Nova Scotia employment rules that should be confirmed with a lawyer before closing.
- Settle employee questions in writing early, because they affect price, timing and the paperwork that follows the sale.
If you are buying or selling a business in Nova Scotia, the people who work there are often the first thing on everyone's mind. Staff want to know whether they still have a job, and buyers and sellers want to know who is responsible for what they have already earned.
The answer starts with how the deal is built. A share sale and an asset sale are treated differently in several ways, and those differences carry into employment. This article explains the structural differences and the questions to ask, but the specific employment rules for your situation should be confirmed with a lawyer.
This article covers the law of Nova Scotia.
Why the type of sale matters for employees
In a share purchase, the buyer acquires the shares of the corporation. The corporation itself carries on as the same legal entity. In an asset purchase, the buyer chooses what to acquire and usually uses its own entity to carry on the business, which has to register its business name and set up its own CRA accounts.
That difference is the starting point for every employee question. When the employer stays the same legal entity, there is no change in who the employer is. When the business moves to a different entity, the question becomes how the employees' existing service and entitlements are dealt with. How existing service and entitlements are treated in that situation depends on your circumstances, so it is worth confirming the details with a lawyer before you sign.
Share sale versus asset sale at a glance
| Point | Share purchase | Asset purchase |
|---|---|---|
| Who is the employer | The same corporation continues | Usually the buyer's own entity |
| Buyer's cost | Relates to the shares only; the corporation's own asset costs do not change | Price is allocated among the assets acquired |
| Registrations | Director and officer changes filed with the Registry of Joint Stock Companies | Buyer's entity registers its business name and sets up CRA accounts |
| Employee questions | Confirm what the corporation already owes and has promised | Confirm how existing service and entitlements are treated on the transfer |
The last row is where legal advice matters most. Whether service is treated as continuous, and who is responsible for accrued vacation or any termination obligations, depends on the structure and on Nova Scotia legislation. It should not be assumed.
Seniority, vacation and severance: the questions to ask
Rather than guessing, both sides should put these questions to a lawyer and then record the answers in the purchase agreement.
- Will employees be kept on, and on what terms, including pay, hours and duties?
- Will past years of service be recognized, and by whom?
- Who is responsible for vacation pay and time off that employees have already earned?
- Is anyone owed notice, pay in place of notice, or severance if their job ends or changes?
- Are any employees covered by a collective agreement or a union certification?
- Are there written employment contracts, bonus plans or benefit plans that need to carry over?
- Who communicates with employees, and when?
Getting clear answers before you sign helps both sides understand what each one is taking on. How these points apply to your sale depends on your situation, so it is worth confirming with a lawyer. Once you have the answers, make sure the price and the closing adjustments reflect them.
Employees and the rest of the deal
Employee matters connect to other parts of the transaction. In an asset sale, the price allocation affects both sides' tax, since the seller may have recapture or a terminal loss of capital cost allowance on depreciable assets. Staff costs and any amounts the seller owes employees can also affect how you negotiate the final price.
CRA should be contacted about ownership changes. For a share purchase, the buyer files director and officer changes with the Registry of Joint Stock Companies. If the business is a registered sole proprietorship or partnership, a change of proprietor or partner is filed through the Registry's change process instead.
What to do next
Treat employees as part of due diligence, not an afterthought. A lawyer can confirm which Nova Scotia rules apply to your structure and help you write them into the agreement.
- Gather a list of employees with start dates, pay, vacation balances and written contracts.
- Find out whether any employees are unionized or covered by a collective agreement.
- Decide whether the deal will be a share sale or an asset sale before settling employment terms.
- Ask a lawyer how Nova Scotia employment rules apply to that structure.
- Agree in writing who handles accrued vacation, notice and severance questions.
- Plan how and when you will tell employees, and what the new employer will offer.
- Complete the post-closing registrations and CRA contact for the new ownership.
Frequently asked questions
Do employees automatically keep their jobs when a business is sold?
It depends on how the deal is structured and on the terms the parties agree to. In a share sale the employer corporation stays the same legal entity. In an asset sale the buyer's own entity must register its business name and set up its own CRA accounts. How employment continues in an asset sale depends on your situation and is worth confirming with a lawyer.
Does a share sale or an asset sale treat employees differently?
The structure changes which entity you deal with, because in a share purchase the company stays the same legal entity, while in an asset purchase the buyer's own entity must register its business name and set up its own CRA accounts. How seniority, vacation and severance are treated in each case depends on Nova Scotia employment rules, so get advice before you fix the structure.
Who is responsible for vacation pay and severance after a sale?
That depends on the structure, the legislation and what the purchase agreement says. Both buyer and seller should identify these amounts during due diligence and decide in writing who bears them.
What paperwork follows a sale once the employees are sorted out?
In a share purchase, the buyer files director and officer changes with the Registry of Joint Stock Companies. In an asset purchase, the buyer's entity registers its business name and sets up its own CRA accounts, and CRA should be contacted about ownership changes.
Sources
- CRA – Buying a business — canada.ca
- CRA – Selling a business — canada.ca
- Nova Scotia – Registry of Joint Stock Companies forms and documents — novascotia.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
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