Splitting a sale into an asset deal and a share deal at once

The situation

What Rui was actually afraid of was simple to state and hard to sit with: signing a deal, taking the money, and finding out eighteen months later that he still owed something to someone connected to the business he thought he had sold. He had lived through something close to that once before, on the sale of an earlier, smaller company, and the memory of that phone call from his accountant, Ishara, had stayed with him for years. He did not describe the fear as a legal problem when he first raised it. He described it as a specific, recurring image: opening an envelope from a lawyer he did not recognize, months after he thought the deal was finished and the money was safely his.

Rui had built a mid-sized construction company in Huntsville over two decades, and along the way had incorporated a separate subsidiary to hold a specialty concrete forming operation that served both his own projects and outside clients across the region. A larger regional construction and infrastructure firm, run by an investor named Manuel who had built a chain of medical clinics before turning his attention to construction and infrastructure roll-ups, approached him about buying the business, and the structure Manuel's team proposed was unusual: they wanted the trucks, equipment, active project contracts and the workforce of the main company, purchased as assets, but they wanted the specialty forming subsidiary bought as a share purchase, keeping its existing corporate history, its equipment financing arrangements and its own set of ongoing contracts intact inside the corporate shell rather than unwound and reassembled.

The deal, once both pieces were valued together, sat in the range of sixty to seventy million dollars, a number that reflected not just the equipment and contracts but two decades of relationships with municipalities and general contractors across the region that neither piece of paperwork could really capture. Rui had already been through one sale before, of a smaller trucking-adjacent business roughly eight years earlier, where we had specifically warned him about the risks of an asset sale that did not properly carve out certain liabilities. He had not fully followed that advice at the time, structured the deal more simply than we recommended to save time and legal cost, and had spent the better part of a year afterward dealing with a dispute over an assumed liability that should have been excluded from the start.

When Rui called about this new deal, his opening question was not about price, and it was not really a question at all. It was closer to an instruction: whatever happened this time, he did not want another call like the one he got after the last sale, and he wanted to know, specifically, what we would do differently to make sure of it.

Why this was harder than it looked

An asset sale and a share sale are not two versions of the same transaction with different paperwork; they are structurally different in what they transfer and what they leave behind, and combining both inside one deal with one buyer and one overall price multiplied every point of complexity rather than simply adding them together.

In the asset sale portion, covering the main company's trucks, equipment, contracts and employees, the buyer would take on the specific assets and liabilities named in the purchase agreement, with a handful of exceptions that follow the business no matter what the agreement says. Employees who carry on with the buyer keep their earlier service for notice and severance purposes, a union's collective agreement carries over to the buyer, and certain tax and environmental obligations attach to the assets or the operation itself. Beyond those exceptions, historical claims, tax exposure and contract disputes not expressly assumed would stay behind with Rui's existing corporation. That structure is generally cleaner for a buyer, which is exactly why the regional firm wanted it for the piece of the business carrying the most operational risk: heavy equipment, active job sites, and employees whose entitlements on a change of employer needed careful handling.

The subsidiary, by contrast, was being sold as shares, meaning the buyer would take the corporation exactly as it stood, with its full history of liabilities, tax filings, equipment leases and existing contracts travelling with it into the sale. The buyer wanted this structure for the subsidiary specifically because its specialty forming contracts with municipalities contained assignment restrictions that would have made an asset sale of those contracts slow and uncertain, since each one might have required separate third-party consent. Buying the shares meant the corporate entity itself, and its contracts, never legally changed hands at all, which sidestepped that consent problem entirely, but it also meant the buyer was inheriting every liability sitting inside that subsidiary, known or not, unless the purchase agreement said otherwise.

The two structures also carried very different tax consequences for Rui personally, since a sale of shares can potentially qualify for a capital gains exemption available to owners of certain private Canadian corporations, while a sale of assets is taxed differently at the corporate level, with the after-tax proceeds only reaching Rui once distributed out of the company. Getting the split wrong, or letting the buyer's preferred allocation of the overall price between the two halves drive the outcome without pushing back, could have meaningfully changed what Rui actually kept once everything was said and done.

None of this was visible from the outside as one clean number. The buyer's initial term sheet described the deal as a single transaction at a single price, and it took real work simply to get both sides talking about it as the two different transactions it actually was, each with its own legal mechanics, before either agreement could be properly drafted.

What we did

1. Treated the deal as two transactions from day one, not one transaction with a complicated schedule. We drafted a separate asset purchase agreement for the main company's equipment and contracts and a separate share purchase agreement for the subsidiary, each with its own representations, warranties and closing conditions, rather than trying to force both structures into a single hybrid document that would have blurred the different protections each side actually needed.
2. Reminded Rui, directly, what had gone wrong on the last deal. Because Rui had a track record of wanting to simplify structures to save time, we walked him through, specifically, what the excluded-liability dispute from his earlier sale had actually cost him in time and money, and asked him to authorize the more careful structure in writing before we proceeded, so the decision was his, made with full information rather than made for him.
3. Built a detailed schedule of excluded liabilities into the asset purchase agreement. Rather than rely on general language, we itemized specific categories of liability, including pending warranty claims on completed projects and certain employee entitlements, that would stay with Rui's existing corporation rather than transfer to the buyer, closing the exact gap that had caused the problem on his prior sale.
4. Ran deeper diligence on the subsidiary precisely because its liabilities would travel with the shares. Since the buyer would inherit everything inside the subsidiary's corporate shell, we had the subsidiary's contracts, equipment leases, tax filings and any historical disputes reviewed more thoroughly than a typical share sale of that size would usually warrant, to surface problems before the buyer's own diligence did.
5. Negotiated the price allocation between the two structures with the tax outcome in mind. We worked with Ishara to negotiate how much of the total price was attributed to the asset sale versus the share sale, since that allocation affected how much of Rui's proceeds could potentially benefit from the capital gains treatment available to owners of qualifying private corporations, rather than accepting the buyer's initial allocation without scrutiny.
6. Coordinated simultaneous closing conditions across both agreements. Because the buyer would not complete one half of the deal without the other, we structured closing conditions in both agreements to be mutually dependent, so that neither transaction could close without the other, protecting Rui from a scenario where the buyer took the lower-risk assets and walked away from the subsidiary shares.
7. Documented employee transition separately for the two structures. The asset sale meant employees of the main company needed to be formally offered new employment by the buyer with recognition of prior service, while employees of the subsidiary simply continued under their existing employer as the shares changed hands, and we made sure both groups received clear, accurate communication reflecting which situation actually applied to them.

The outcome

The hybrid deal closed on schedule, with both agreements executing simultaneously as planned, at a total price within the range originally discussed. The excluded-liabilities schedule in the asset purchase agreement meant that when a warranty claim on a project completed under Rui's ownership did surface roughly four months after closing, it was clearly and unambiguously his responsibility to handle under the agreement's terms, not a dispute over whether the buyer had assumed it. He handled it directly with his existing insurance, quickly, without involving the buyer at all.

The price allocation negotiated between the two structures also meant Rui's personal tax position on the proceeds was materially better than it would have been under the buyer's original proposed split, though the exact benefit depended on his overall tax situation and was calculated by Ishara rather than by us. Rui later said the deal took noticeably longer to close than his previous sale had, and cost more in legal fees given the two parallel agreements, but that he never once, in the months afterward, got a call about a liability he thought he had left behind.

What this file shows, more than a favourable number, is what changed between Rui's two sales. The problem the earlier deal produced did not happen again, not because the second buyer was more careful than the first, but because the agreement this time drew the lines precisely enough that there was nothing left ambiguous for a dispute to grow out of. Rui, by his own account, finally understood on this deal why the more careful structure had been worth the extra time all along, and said so, unprompted, at the closing dinner months later.

It is worth being honest about what prevention looks like from the outside: nothing happened. No lawsuit, no assumed liability, no envelope from an unfamiliar lawyer. That absence is easy to mistake for luck rather than for the specific, deliberate work of building a schedule that named the risks before they had a chance to become disputes.

What you can learn from this