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Buying or selling a business is a major milestone. For many business owners, it represents years of hard work, risk, sacrifice, and growth. For buyers, it can be an exciting opportunity to step into an existing business and build on what someone else has created.

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But before a deal closes, one of the most important questions is:

Are you buying or selling the assets of the business, or the shares of the company that owns the business?

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In British Columbia, most business purchase and sale transactions are structured in one of two ways:

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1. An asset purchase

2. A share purchase

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The structure matters. It can affect taxes, liability, employees, contracts, leases, financing, risk, and how smoothly the deal closes.

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This article explains the difference between an asset purchase and a share purchase, the pros and cons of each, and what both buyers and sellers should think about before signing.

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This article is for general information only and is not legal advice. Every business sale is different, and you should speak with a lawyer and accountant before deciding on the right structure for your transaction.

What Is an Asset Purchase?

In an asset purchase, the buyer purchases specific assets of the business.

These may include things like:

• Equipment

• Inventory

• Furniture

• Vehicles

• Trade names

• Websites and domain names

• Customer lists

• Phone numbers

• Intellectual property

• Goodwill

• Contracts

• Leasehold improvements

• Real estate, if applicable

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The buyer does not automatically buy the company itself. Instead, the buyer usually purchases selected assets from the seller and continues the business through a new or existing corporation.

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A simple way to think about it is this:

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In an asset purchase, the buyer picks and chooses what they want to buy.

The buyer may also agree to take on certain liabilities, but only if the purchase agreement says so.

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What Is a Share Purchase?

In a share purchase, the buyer purchases the shares of the corporation that owns and operates the business.

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The company stays the same. The business continues to own its assets, employ its staff, hold its contracts, operate its bank accounts, and carry on business as before. What changes is the ownership of the company.

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A simple way to think about it is this:

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In a share purchase, the buyer buys the company itself.

That means the buyer takes over the company with its assets, contracts, history, obligations, and potential liabilities.

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Asset Purchase:

Pros and Cons

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Why Buyers Often Like Asset Purchases

Buyers often prefer asset purchases because they can have more control over what they are buying.

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For example, a buyer may want the equipment, inventory, customer list, website, and goodwill, but not the seller’s old debts, lawsuits, tax issues, or supplier disputes.

An asset purchase can help a buyer reduce the risk of taking on unknown liabilities.

It can also be useful when the buyer only wants part of a business, such as one location, one division, or certain operating assets.

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Why Asset Purchases Can Be More Complicated

Asset purchases can involve more paperwork and more closing steps.

Because the buyer is purchasing individual assets, those assets often need to be transferred one by one. Some transfers are simple. Others require third-party consent.

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For example:

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• A landlord may need to approve an assignment of the lease.

• A supplier contract may not be transferable without consent.

• A franchise agreement may require franchisor approval.

• A permit or licence may not be transferable at all.

• A vehicle may need separate transfer documents.

• Intellectual property may need a written assignment.

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There may also be tax issues, including GST/HST, PST, and, if land is involved, property transfer tax.

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In BC, buyers should also be aware of PST clearance issues. If a business is being purchased, the buyer should consider whether a clearance certificate is needed so they are not surprised by unpaid PST liabilities of the seller.

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Why Sellers May Agree to an Asset Purchase

An asset sale may make sense for a seller who wants to sell only part of the business, keep the corporation, or retain certain assets.

It can also be helpful where the company has historical issues that make a share sale less attractive to a buyer.

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For example, if a company has old debt, unresolved disputes, or messy records, a buyer may be more comfortable purchasing selected assets rather than the entire company.

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Why Sellers May Not Prefer an Asset Purchase

From a seller’s perspective, an asset sale can sometimes be less attractive from a tax perspective. The company sells the assets, and there may be tax payable inside the corporation. If the owner wants to remove the sale proceeds from the corporation later, there may be additional tax planning required.

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Asset sales can also require more work before closing. The seller may need to deal with consents, lease assignments, employee transition issues, secured creditors, tax accounts, and transfer documents.

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The allocation of the purchase price is also important. Buyers and sellers may have different preferences for how the price is allocated among equipment, inventory, goodwill, restrictive covenants, and other assets. This should be reviewed carefully with an accountant.

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Share Purchase:

Pros and Cons

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Why Sellers Often Like Share Purchases

Sellers often prefer share purchases.

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One major reason is tax planning. In some cases, an individual seller may be able to use the lifetime capital gains exemption on the sale of qualified small business corporation shares. This can be very valuable, but it depends on specific tax rules and should be reviewed with an accountant well before the sale.

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A share sale can also feel cleaner for the seller. Instead of transferring each asset separately, the seller transfers the shares of the company. The company continues to own the assets and operate the business.

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This can reduce the number of transfer steps and may make the transition smoother.

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Why Buyers May Like Share Purchases

A share purchase may be attractive to a buyer where business continuity is important.

For example, a share purchase may help preserve:

• Customer contracts

• Supplier relationships

• Leases

• Licences and permits

• Employee relationships

• Bank accounts

• Business history

• Brand identity

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That said, buyers should not assume everything automatically continues without issue. Some contracts contain “change of control” clauses, which may require consent even if the shares are being sold rather than the assets.

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The Main Risk for Buyers in a Share Purchase

The biggest issue for a buyer in a share purchase is inherited risk.

When a buyer purchases the shares of a company, they are stepping into ownership of that company. The company’s past comes with it.

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That can include:

• Unpaid taxes

• Payroll issues

• Employee claims

• Contractor misclassification issues

• Lawsuits or threatened claims

• Unpaid suppliers

• Debt

• Lease defaults

• Environmental issues

• Privacy or data problems

• Problems with corporate records

• Undisclosed liabilities

• GST/HST or PST issues

• WorkSafeBC issues

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This does not mean share purchases should be avoided. It means due diligence is very important.

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A buyer should understand what they are buying before closing, and the purchase agreement should include strong protections.

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Why Share Purchases Can Be More Work Before Signing

Because the buyer is taking over the company, the buyer will usually want to conduct detailed due diligence.

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This may include reviewing:

• Corporate records and minute books

• Financial statements

• Tax returns

• GST/HST and PST filings

• Payroll records

• Employment agreements

• Contractor agreements

• Leases

• Supplier contracts

• Customer contracts

• Loans and security registrations

• Litigation history

• Insurance policies

• Licences and permits

• Intellectual property

• Shareholder loans

• Related-party transactions

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For sellers, this means preparation matters. A well-organized seller can often move through due diligence more smoothly and with fewer delays.

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What Should a Seller Think About?

If you are selling your business, you should think about structure early.

Do not wait until the purchase agreement is being drafted to ask whether the deal should be an asset sale or a share sale. The structure should usually be discussed before or during the letter of intent stage.

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As a seller, you should consider:

1. What exactly are you selling?

Are you selling the whole business, or only part of it?

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Are there assets you want to keep?

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Are there personal assets, vehicles, intellectual property, real estate, or investment assets inside the company that should not be included in the sale?

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2. Is your corporation ready for sale?

If you are hoping for a share sale, your corporate records should be in good order.

That means your minute book, share records, annual reports, shareholder information, and director/officer records should be reviewed.

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If there are old shareholders, undocumented transfers, missing resolutions, shareholder loans, or family members on the share register, those issues should be addressed early.

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3. Have you spoken with your accountant?

Tax planning is a major part of selling a business.

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A seller should understand the tax difference between an asset sale and a share sale before agreeing to a structure. In some cases, planning must be done well in advance to achieve the desired tax result.

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4. Are there third-party consents?

Even if you own the business, you may still need consent from others before a sale can close.

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For example, you may need consent from:

• A landlord

• A franchisor

• A lender

• A key supplier

• A regulatory body

• A business partner

• A secured creditor

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These issues can affect timing and should be identified early.

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5. What happens to employees?

Employees are often one of the most sensitive parts of a business sale.

In BC, employment obligations can continue in certain business sale situations.

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Sellers and buyers should be clear about which employees are staying, whether offers of employment will be made, how vacation pay and benefits will be handled, and who is responsible for any termination costs.

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What Should a Buyer Think About?

If you are buying a business, the structure of the deal affects your risk.

A good opportunity can become a difficult situation if the buyer does not understand what liabilities, obligations, and practical issues come with the purchase

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As a buyer, you should consider:

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1. Do you want the assets or the company?

If you only want certain assets and want to reduce exposure to historical liabilities, an asset purchase may be more appropriate.

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If the value of the business depends on existing contracts, licences, leases, employees, or continuity, a share purchase may be worth considering.

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2. What liabilities could you inherit?

This is especially important in a share purchase.

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A buyer should investigate the company carefully and make sure the purchase agreement includes proper representations, warranties, indemnities, and disclosure schedules.

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In some cases, a buyer may also want a holdback or escrow to protect against post-closing claims.

3. Are the key contracts transferable?

For many businesses, the real value is not just equipment or inventory. It may be the lease, customer contracts, supplier relationships, licence rights, or franchise rights.

Before signing, a buyer should confirm whether those rights can be transferred or whether consent is required.

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4. Are the numbers reliable?

Buyers should review the financial information carefully.

This includes revenue, expenses, margins, inventory, debts, accounts receivable, accounts payable, payroll, taxes, and any unusual owner expenses that may have been added back.

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A lawyer can help with the legal structure, but the financial review should also involve an accountant.

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5. What happens after closing?

A buyer should think beyond the closing date.

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• Will the seller provide training?

• Will there be a transition period?

• Will the seller introduce the buyer to customers and suppliers?

• Will the seller agree not to compete with the business after closing?

• Will the seller help transfer social media accounts, websites, phone numbers, email accounts, and business records?

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These practical details can be just as important as the legal documents.

Asset Purchase or Share Purchase: Which Is Better?

There is no one-size-fits-all answer.

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In many cases:

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• Buyers prefer asset purchases because they can choose what they want to buy and reduce exposure to unknown liabilities.

• Sellers prefer share purchases because the sale may be cleaner and potentially more favourable from a tax perspective.

• But every deal is different.

• An asset purchase may make sense where the buyer is concerned about old liabilities, messy records, or debts in the company.

• A share purchase may make sense where the business relies heavily on contracts, licences, permits, leases, or continuity.

• The right structure depends on the business, the parties, the tax consequences, the risks, and the negotiating leverage on both sides.

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The Purchase Agreement Matters

Whether the deal is structured as an asset purchase or a share purchase, the purchase agreement is one of the most important documents in the transaction.

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A properly drafted agreement should clearly address:

• What is being purchased

• What is excluded

• The purchase price

• Deposits

• Financing conditions

• Inventory and working capital

• Assumed liabilities

• Excluded liabilities

• Employee matters

• Lease assignment or landlord consent

• Contract assignments

• Tax matters

• Closing conditions

• Representations and warranties

• Seller disclosures

• Indemnities

• Holdbacks or escrow

• Non-competition and non-solicitation obligations

• Training and transition support

• Closing documents

• What happens if something goes wrong

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A good agreement does more than record the deal. It helps prevent misunderstandings and protects both sides.

Final Thoughts

Buying or selling a business in BC is a significant transaction. It is not just about agreeing on a price.

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The structure of the deal can affect taxes, risk, employees, contracts, liabilities, and what happens after closing.

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An asset purchase can give a buyer more control over what they are buying, but it may involve more transfer steps and third-party consents.

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A share purchase can offer smoother continuity and may be attractive to sellers, but it can expose buyers to the company’s past liabilities.

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Before signing a letter of intent or purchase agreement, buyers and sellers should get legal and tax advice. Taking the time to structure the deal properly at the beginning can save significant stress, cost, and disputes later.

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At our firm, we help business owners, buyers, and sellers understand their options, negotiate practical terms, and move through the transaction with clarity and confidence.