Reviewed by Karim Eshqoor, Lawyer, Barbarian Law™ (LSO #83032R)
Every Ontario business acquisition hits the same fork: buy the corporation’s shares, or buy selected assets. Shares usually favour sellers (capital gains / LCGE path); assets usually favour buyers (leave liabilities behind, tax cost step-up). Structure is the negotiation — decide it before the letter of intent hardens.
Every business acquisition starts at the same fork in the road, usually before anyone has drafted a word: are you buying the shares of the corporation, or its assets?
It sounds like a technicality. It’s the opposite. The answer changes who pays tax and how much, which liabilities follow the business, what happens to employees and contracts, and often the price itself. Buyers and sellers usually want opposite answers — which is why the structure is the negotiation.
Barbarian Law™ structures and closes share and asset purchases across York Region and the GTA — LOIs, diligence, purchase agreements, and the licensing and lease consents that come with them. Corporate · Commercial · Fees · Contact.
What is the difference between a share purchase and an asset purchase?
Share purchase: you buy the corporation itself. Every share changes hands and the company keeps operating exactly as before — same contracts, same licences, same bank accounts, same history. You’ve bought the container and everything in it, known and unknown.
Asset purchase: the corporation sells you its stuff — equipment, inventory, customer lists, goodwill, the lease, the name — and you run the business through your own entity. The seller keeps the old corporation, and its skeletons, and winds it up or doesn’t.
| Share purchase | Asset purchase | |
|---|---|---|
| What changes hands | The corporation itself | Selected assets only |
| Liabilities | Follow the business | Mostly stay behind |
| Seller’s tax | Capital gain; LCGE may apply | Corporate tax, then tax again on extraction |
| Buyer’s tax cost | Inherits old, low cost base | Stepped up to purchase price |
| Contracts | Stay in place — watch change-of-control | Must be assigned; consents required |
| Employees | Continue seamlessly | Service carries over anyway (ESA successor) |
| Typically favours | Seller | Buyer |
Why do sellers prefer a share sale?
The lifetime capital gains exemption. This is usually the whole ballgame. An individual selling qualifying shares of a Canadian-controlled private corporation can shelter up to $1,275,000 of the gain from tax (the 2026 figure, indexed annually), per shareholder. A couple who each hold qualifying shares can shelter over $2.5 million between them.
Sell assets instead and the exemption is unavailable: the corporation pays tax on the sale, and the owner pays tax again extracting the proceeds. For many owners the difference between a share deal and an asset deal is a six-figure tax bill — which is why sellers often accept a lower price on a share deal than they’d demand on an asset deal. Structure is money. Negotiate them together.
A clean exit. Sell the shares and everything goes, liabilities included. The seller walks away — subject to the indemnities they sign.
Note the fine print: qualifying for the exemption has conditions, including holding-period and asset-composition tests the corporation must meet before the sale, sometimes requiring a “purification” reorganization months in advance. That’s why sellers should get advice before listing the business — and why incorporating early matters. Sole proprietors have no shares to sell.
Why do buyers prefer an asset purchase?
You leave the skeletons. Buy shares and you inherit the corporation’s entire history: tax reassessments, undisclosed debts, lawsuits nobody mentioned, warranty claims on products sold years ago. Buy assets and — with important exceptions — the liabilities stay with the seller’s corporation.
You pick and choose. Take the equipment and the brand; leave the mouldy lease and the money-losing division.
Tax cost “step-up.” In an asset deal, the buyer’s tax cost in the assets is what they paid, meaning higher depreciation deductions going forward. In a share deal, the buyer inherits the corporation’s old — usually low — tax costs.
The exemption needs years of planning
Shares only qualify for the lifetime capital gains exemption if the company meets asset and holding-period tests, including a 24-month look-back. Plan before you list the business.
What exceptions decide real deals?
Employees. In an Ontario asset deal, employment standards law treats the buyer as a successor: hire the seller’s employees and their years of service carry over for termination and severance purposes. You cannot buy the workforce fresh. Long-service employees are a real, priceable liability under either structure — diligence them like debt.
Contracts and leases. In a share deal, contracts stay with the corporation, but check for change-of-control clauses that let the other side walk. In an asset deal, every contract must be assigned, and most leases and key contracts require consent — which means the landlord and your major customers effectively get a seat at your closing. See commercial lease red flags.
Licences and franchises. Regulatory approvals rarely move like furniture. Liquor licences, cannabis authorizations, and franchise agreements each have their own transfer or consent regime — and even share deals can trigger regulatory notification when control changes. Build the deal timeline around the regulator’s timeline, not the other way around.
Sales tax and land. Asset deals raise HST issues — often manageable with a joint election where substantially all the business assets are sold, but only if it’s papered properly. If real estate is among the assets, land transfer tax enters the equation too. Share deals generally avoid both. Property side: real estate.
How much due diligence does each structure need?
Buy assets and diligence focuses on what you’re acquiring: title to equipment, the lease, the contracts, the employees. Buy shares and you must diligence everything the corporation has ever done, because you’re buying all of it.
That’s why share deals lean so heavily on representations, warranties, indemnities, and holdbacks: the contract has to cover what diligence can’t see. A seller whose minute book is a mess — the same clean-up flagged in multiple wills — will feel it here, in delay, in price, or both. Equal partners? Don’t forget the shareholder agreement.
How much does a lawyer cost to buy or sell a business?
Deal fees at Barbarian Law™
| Service | Price |
|---|---|
| Asset purchase or share sale | $395/hour + HST |
| Ontario incorporation, numbered company (incl. government filing fee) | $1,000 + HST |
| Ontario incorporation, named company (incl. filing fee and NUANS search) | $1,200 + HST |
| Independent legal advice | $500 + HST |
Prices exclude HST and disbursements. Hourly work is billed against a written estimate you approve before work begins.
Frequently asked questions
Is a share sale or an asset sale better for taxes?
Usually a share sale for the seller, because the lifetime capital gains exemption can apply. Usually an asset purchase for the buyer, because assets are acquired at a fresh cost for tax purposes.
Does HST apply to an asset purchase?
It can. Where the buyer acquires all or substantially all of the assets of a business, the parties can often elect to avoid paying HST on the sale. Get this right in the agreement.
Do employees transfer in an asset sale?
The buyer chooses whom to hire, but under Ontario’s Employment Standards Act employees who are hired keep their service for many purposes. Plan severance and offers early.
The bottom line
There’s no universally right structure. There’s the right structure for this deal, priced accordingly. Sellers: get advice early enough to qualify for the capital gains exemption and clean up the corporation before buyers look inside. Buyers: price the structure, not just the business — an asset deal at one number and a share deal at a lower number may be the same deal.
Buying or selling a business in Ontario? Contact Barbarian Law before the letter of intent is signed. That’s when structure is decided.
Where Art Meets Corporate Interest.
Get the structure right before it costs you.
Send what the business does and who the owners are. You get a written estimate before any work begins.
This article is general information about Ontario law, not legal advice, and reading it does not create a lawyer-client relationship. Every situation is different; speak with a lawyer about yours.
