Share Sale or Asset Sale? Which Wins (from Vendor & Buyer Perspectives)

One of the top questions I hear is:

“When selling a business, should you structure the deal as a share sale or an asset sale?”

The best answer really depends on whether you’re the seller (vendor) or the buyer (purchaser). Typically, sellers favour share sales; buyers often prefer asset transactions. Below is a breakdown of why.

Share Sale

In a share sale, the buyer acquires ownership of the corporation itself — which means taking on everything: assets, liabilities, past obligations, and tax attributes.

From the Vendor’s (Seller’s) View

• Lifetime Capital Gains Exemption (LCGE): If the shares qualify as Qualified Small Business Corporation (QSBC) shares, the seller may be able to exclude up to $1.25 million (in 2025) of capital gains from tax. (Check current limits and eligibility conditions.)

• Capital Gains vs Ordinary Income: The profit is taxed as a capital gain, which is typically more favorable than business income. In contrast, asset sales may force “recapture” of previously claimed depreciation (CCA) taxed as ordinary income.

• Capital Gains Reserve: If the full proceeds are not paid immediately, part of the tax liability can be deferred using a capital gains reserve (spread over up to 5 years).

From the Purchaser’s (Buyer’s) View

• Inherited Liabilities & Tax History: Buying shares means assuming the corporation’s entire legal and tax history. Any past liens, lawsuits, or unreported taxes now transfer to you.

• No “Step-Up” in Asset Basis / UCC Issues: The undepreciated capital cost (UCC) of assets inside the corporation remains what it was under the seller — there’s no reset to fair market value. That means if the UCC is zero or very low, there’s little room for depreciation (CCA) deductions going forward.

  • For example: If a company previously claimed depreciation on a building so its UCC is reduced to zero, a purchaser via share sale cannot claim new CCA on that building.

Because of these drawbacks, buyers often prefer to negotiate an asset purchase instead.

Asset Sale

Under an asset sale, the buyer picks and purchases specific business assets (equipment, goodwill, etc.) from the corporation. The seller retains the legal entity (unless later wound up or liquidated).

From the Vendor’s View

• Loss of LCGE Eligibility: Generally, proceeds from asset sales do not qualify for the LCGE (unless recharacterizations or special elections apply).

• CCA Recapture Risk: If the seller has claimed depreciation (CCA) on those assets, selling them above their UCC triggers recapture. That recaptured amount is taxed as ordinary business income, which is less favorable than capital gains.

• Corporate Winding / Liquidation Needed: After disposing of assets, the seller often must wind up or dissolve the corporation, which can bring additional tax and administrative complexity (including distributing leftover cash, handling liabilities, and so on).

From the Purchaser’s View

• New Cost Basis / Fresh UCC: The buyer acquires each asset at its fair market value, which becomes the new cost base. This allows fresh depreciation (CCA) deductions in the future.

• Selective Acquisition / Liability Control: The buyer can choose which assets to acquire and which liabilities to assume. They can avoid hidden risks from the seller’s past.

• Clean Slate: Since the buyer is purchasing individual assets—not the legal entity—they don’t inherit the corporation’s tax history, undisclosed obligations, or prior liabilities.

Purchase Price Allocation (PPA)

In an asset sale, when you agree on a total purchase price (e.g. $1 million), that amount must be allocated among different asset classes (equipment, land, goodwill, etc.).

• Sellers generally prefer allocating more value to goodwill (so they benefit from capital gains treatment).

• Buyers prefer allocating more to depreciable assets (to maximize future depreciation claims).

Negotiations over that allocation often become a key battleground in deal structuring.

Pro Tip / Common Outcome

It’s not unusual for a share sale price to be lower than what the same business might fetch in an asset sale. Why? Sellers get significant tax advantages (especially via LCGE) when selling shares, so they give up some upfront premium in exchange for better after-tax proceeds.