Buying or Selling a Business: Shares or Assets?

Every private business sale eventually reaches the same fork: transfer the shares of the corporation, or have the corporation sell its assets. The business looks identical the day after either deal — but the tax, liability, and price consequences diverge sharply.

The tension is structural. A share sale gives the seller capital gains treatment and, where the company qualifies, access to the lifetime capital gains exemption — $1.25 million of sheltered gain per qualifying individual. An asset sale gives the buyer a fresh cost base to depreciate and a clean break from the corporation's history. Each side's preference is the other side's cost.

For the seller, a share sale is one level of tax — a personal capital gain, half taxable, potentially sheltered by the lifetime capital gains exemption where the shares meet the qualified small business corporation tests (broadly: a small business corporation at sale, held two years, with asset-use tests through that period — the reason purification planning starts years early). An asset sale, by contrast, is taxed twice on its way to the owner: the corporation pays tax on recapture and gains, and the owner pays again extracting the proceeds.

For the buyer, assets mean a stepped-up cost base — equipment and buildings depreciable from the purchase price, goodwill deductible over time — and freedom from the seller's tax history, lawsuits, and hidden liabilities, choosing exactly which contracts and employees come along. Shares mean inheriting everything, known and unknown, mitigated only by due diligence, representations, warranties, and holdbacks. In practice the gap is priced: buyers pay more for assets, sellers accept less for them, and hybrid structures and elections can narrow the space between. The worst outcome is discovering the structure question after the handshake price is set.