Before signing a letter of intent, the seller and the buyer have to agree on what actually changes hands. For an owner preparing for retirement, and for a purchaser planning a business acquisition, the shares-or-assets question gets settled before the price.
A share sale transfers the corporation itself. An asset sale transfers selected property. That choice changes the tax the seller pays, the depreciation the buyer can claim, the liabilities assumed and, ultimately, the purchase price. At Gaudreault Évaluation d’Entreprises, we determine the fair market value of the shares or assets of SMEs across Quebec, with no stake in the transaction.
Share Sale and Asset Sale: What the Buyer Actually Gets
In a share sale, the buyer acquires the shares held by the shareholders. The legal entity stays the same: only the ownership changes. The corporation keeps its contracts, permits, employees, debts and tax history. The seller, often an individual or a holding company, receives the purchase price directly.
In an asset sale, the corporation stays with the seller and transfers specific assets to the purchaser. The purchaser can choose what it wants, buy assets that fit its plan and leave the rest with the seller. The seller keeps the corporation. Typical items in an asset purchase:
- equipment, inventory and accounts receivable;
- real property, with the land transfer duties that come with it;
- goodwill, the client base, trademarks, patents and intellectual property;
- certain contracts and leases, if the other parties consent to the assignment.
The purchase price is then paid to the selling corporation, not to its shareholders. That distinction has major tax consequences, covered below. If you are browsing businesses for sale in Quebec, check early which structure the seller is offering: two listings at the same asking price can represent very different values.
Selling Your Shares or Your Assets: The Tax Impact for the Seller
For owners who want to sell their business, share sales rather than asset sales change the seller’s tax bill. A seller who sells the shares of the corporation realizes a personal capital gain, half of which is included in taxable income.
The Canada Revenue Agency has confirmed that the proposed increase to the capital gains inclusion rate was cancelled. A business valuation for a sale puts a number on this tax benefit before the asking price is set.
Lifetime Capital Gains Exemption and Qualified Small Business Corporation Shares
The lifetime capital gains exemption (LCGE) is the main argument for a sale of shares. According to the Canada Revenue Agency indexation table, the exemption is $1,250,000 for 2025 and $1,275,000 for 2026 on qualified small business corporation shares (QSBC shares). Revenu Québec has harmonized with this increase.
For the corporation to be a small business corporation and for the capital gains exemption to apply, the Income Tax Act sets several conditions on the seller and the shares:
- The seller is an individual (a trust can, in some cases, allocate the gain to its beneficiaries); a holding company cannot claim the exemption.
- The shares have been held for at least 24 months.
- Throughout those 24 months, more than 50% of the fair market value of the assets is used in an active business carried on in Canada.
- At the time of the sale, that threshold rises to 90% or more.
Excess cash or investments inside the corporation can make it fail these tests. Tax planning (purification, crystallization) therefore has to start years before the sale.
The alternative minimum tax may also apply to a seller who claims the exemption. The rules on intergenerational transfers now allow, under conditions, a sale to a family member; our article on business succession planning covers that scenario, and our intergenerational transfer valuation service establishes the value required.
CCA Recapture, GST and QST: What Selling the Assets Costs
In a sale of assets, the corporation is the one selling and paying the tax. If the price of a depreciable property exceeds its undepreciated capital cost (UCC), the excess becomes recapture of capital cost allowance (CCA), fully included in the corporation’s income.
The gain on goodwill is taxed in turn, at the corporation’s tax rate. The seller then has to take the proceeds of the asset sale out of the corporation, often as a dividend: two levels of tax instead of one, and no capital gains exemption on the assets sold.
An asset sale carries other transaction costs. GST and QST apply in principle to taxable property. There is an exception. If the buyer acquires 90% or more of the property needed to carry on the business, the parties can make the joint Section 167 election (Form GST44 for GST/HST under the Excise Tax Act, and Form FP-2044 for QST with Revenu Québec).
Land transfer duties (the “welcome tax”) are payable on the transfer of real property.
A sale of a corporation’s shares is generally not subject to sales taxes, and real property held by the corporation does not change owners. An asset sale can raise the seller’s tax bill for the same headline price.
Test the Structure of Your Transaction with an Independent Valuator
Quantify the tax gap between the two structures before you negotiate. We work alongside your tax advisor, with no conflict of interest.
Buying the Shares of a Business: Risks, Liabilities and Contracts
Buying the shares of a business means inheriting its past and its historical liabilities. The buyer takes on the debts, lawsuits, tax obligations and undisclosed liabilities, including those that surface after closing: every hidden liability becomes the buyer’s responsibility. Rigorous due diligence is the first protection; the share purchase agreement is the second. That agreement usually provides for:
- representations and warranties from the seller on the financial statements, taxes and litigation;
- indemnities, with a set duration and cap, so the buyer is indemnified for covered losses;
- a holdback of part of the purchase price in trust, to compensate the buyer if needed;
- a balance of sale, which can be set off against a claim.
On the other hand, a share purchase gives the buyer some tax benefits. The buyer keeps the corporation’s tax attributes: loss carryforwards, the capital dividend account, the RDTOH. The purchaser does, however, pay for assets whose tax cost has already been depreciated, which reduces its future CCA. That cost is real. Our business valuation for a purchase prices these risks.
Permits, Licences and Leases: The Continuity the Buyer Wants
Continuity is the practical advantage of a share sale. Permits, licences, leases, bank accounts and contracts stay in the name of the same corporation; only some contracts require consent on a change of control. Employees keep their terms and suppliers keep dealing with the same corporation, which gives the buyer continuity.
In an asset sale, each contract has to be assigned, leases are often renegotiated and some permits must be obtained again by the purchaser. That takes time. For a regulated business (transport, construction, health, food), that delay can push the transaction back by several months. The lender financing the deal will also want to know which contracts will transfer at closing.
Asset Sale vs Share Sale: How Valuation and Price Differ
The structure leaves cash flow unchanged. It changes what the buyer pays and what the buyer gets in return. A competitor buying for synergies may offer more, but the share or asset structure determines what that offer covers. Business valuation methods (discounted cash flow, capitalized cash flow, market multiples, net asset value) first lead to an enterprise value. The valuation then adjusts that value to the structure of the transaction.
Share Value: From Enterprise Value to the Price Paid
Enterprise value measures the operations, often based on normalized EBITDA. To get to share value, the valuator deducts interest-bearing debt, adds cash and redundant assets, then compares the working capital delivered with the normal level required.
In a share sale, the buyer pays this net value and inherits the liabilities. An informed buyer will push for a price reduction to offset the lost depreciation and the risks assumed. In an asset purchase, the purchaser pays for the operating assets, without the debt or the cash. Comparing two offers therefore means bringing each one back to fair market value on an after-tax basis.
Purchase Price Allocation and Goodwill
In an asset sale, the purchase agreement has to allocate the price among the assets. This purchase price allocation puts the seller and the buyer on opposite sides. The buyer wants more allocated to equipment, which it can write off quickly through capital cost allowance. The seller prefers more allocated to goodwill, taxed as a capital gain, and less to assets that trigger CCA recapture.
Goodwill falls into Class 14.1, which is depreciated slowly. In September 2026, the federal government also proposed immediate expensing for many depreciable assets acquired on or after September 15, 2026; goodwill and buildings are excluded. An allocation without support may be challenged by the Canada Revenue Agency. An independent valuator documents a defensible allocation based on the fair market value of each asset class.
Get a Defensible Fair Market Value Before You Negotiate
A report prepared under CBV Institute practice standards supports your price with the buyer, the lender and the tax authorities. Confidential consultation, no commitment.
Hybrid Sales, Share Redemptions and Vendor Take-Backs: The Middle Ground
Between a share sale and an asset sale, several ways to structure the transaction let the seller and the buyer share the tax benefits.
In a hybrid sale, the corporation first sells certain assets to the buyer, then the seller sells the shares and claims the capital gains exemption. A prior corporate reorganization can also isolate excluded assets or the real property. A share redemption by the corporation can, for example, buy out a partner before the sale. This kind of hybrid transaction is more complex and requires a tax advisor.
A vendor take-back (balance of sale) also brings the parties closer. The seller finances part of the purchase price and can, under conditions, spread the tax on the gain with a capital gains reserve over five years, or ten years for QSBC shares sold to a child. A hypothec can secure that balance of sale. A price adjustment tied to future results sometimes completes the deal.
Decide Before the Letter of Intent: Seller, Tax Advisor and Valuator
Whether you want to sell your business or complete the purchase of a business, the letter of intent or offer to purchase often locks in the structure. Before signing it, the seller and the buyer should settle these points:
- Does the seller qualify for the exemption, and for what net amount?
- What is the real tax cost of an asset sale for the corporation and its shareholders?
- Which liabilities, contracts and permits is the buyer willing to take on?
- What share value, or what purchase price allocation, can be defended?
The highest headline price is not always the highest after-tax amount.
Discuss Your Business Sale with a CBV
We establish the value of the shares and the assets before the structure is locked in. Yannick Gaudreault, CPA, CBV, CVA, and his team can be reached at 418-473-3561.
Share Sale vs Asset Sale: Frequently Asked Questions
Why Does the Seller Often Prefer to Sell Shares?
A seller who can sell shares pays a single level of tax on a capital gain and, if the shares qualify, benefits from the lifetime exemption. In an asset sale, the corporation pays tax on the CCA recapture and the gain, then the seller pays again when taking the funds out.
What Happens to the Debts in an Asset Purchase?
In an asset purchase, the debts and tax obligations stay in the seller’s corporation, unless the buyer expressly agrees to take some of them on. The seller usually repays its creditors out of the purchase price received.
Does the Purchase Price Change with the Structure Chosen?
Yes. For the same enterprise value, a buyer generally pays less for the shares than for the assets, because the buyer inherits the risks and the liabilities and loses part of the depreciation. In the sale of the business, the price gap becomes a matter of negotiation, using after-tax figures for both the seller and the buyer.
Can a Holding Company Use the Exemption?
No. Only an individual can claim the exemption on qualified small business corporation shares. If the shares of the operating company are owned by a holding company, a reorganization before the sale is often needed, and it should be planned early.
