Introduction
When a business is sold, one of the first structural questions is whether it will be a sale of shares or a sale of assets. For the buyer and seller, these are different transactions with different tax consequences — and in a negotiation, the preference of each party typically points in opposite directions. This article focuses on the seller's perspective.
What Each Structure Means
Share sale: The buyer purchases the shares of the corporation from the selling shareholder. After the transaction, the buyer owns the corporation — with all of its assets, liabilities, contracts, and tax history. The seller receives sale proceeds personally and reports a capital gain (proceeds minus ACB of the shares).
Asset sale: The corporation sells its assets to the buyer — equipment, intellectual property, goodwill, customer contracts, inventory. The buyer gets a clean slate with stepped-up cost bases. The corporation receives the sale proceeds, pays corporate tax on any gains, and then distributes the after-tax proceeds to the shareholder (as dividends or return of capital) — with additional personal tax at that stage.
Why Sellers Almost Always Prefer a Share Sale
Access to the Lifetime Capital Gains Exemption (LCGE): The LCGE allows an individual to shelter up to approximately $1.25 million (in 2026, indexed annually) of capital gains on the disposition of qualifying small business corporation (QSBC) shares. In a share sale, the gain is a personal capital gain — and the LCGE can apply. In an asset sale, the gain is realised at the corporate level — no LCGE.
For a business sold for $1.5 million where the seller's ACB is low, the entire gain on a share sale might be sheltered by the LCGE (with proper planning and QSBC qualification). The same transaction structured as an asset sale triggers corporate tax on the asset gains, then personal tax on the distribution — a combined rate that can approach 50% on portions of the gain.
Single level of tax: In a share sale, there is one tax event — the capital gain on the shares, taxed at the capital gains inclusion rate. In an asset sale, there are two events — corporate tax on the asset gains, then personal tax on the distribution.
No retained earnings tax trap: In a share sale, the corporation's retained earnings (already taxed at the corporate level) pass to the buyer. The seller does not need to extract them before the sale. In an asset sale followed by a wind-up, the retained earnings must be distributed and personally taxed.
What the Seller Gives Up in a Share Sale
Historical liabilities: The buyer inherits the corporation's full tax history — potential reassessments, unresolved CRA reviews, legacy liabilities. This is the buyer's primary objection to share sales. To address this, share purchase agreements typically include tax indemnities and representations that limit the seller's exposure for pre-closing tax matters.
Negotiating power: Because buyers generally prefer asset sales, a seller insisting on a share sale structure may face a lower headline price. The price difference is the buyer's estimate of the incremental risk they bear. In competitive sale processes, the share sale premium can be negotiated; in single-buyer scenarios, it may be harder to achieve.
When an Asset Sale Is Unavoidable
Some transactions cannot be structured as share sales:
Where the business is operated as a sole proprietorship or partnership (no shares to sell)
Where the buyer's mandate requires an asset acquisition
Where the corporation's liabilities are so significant that no buyer will accept them
Where professional regulatory rules restrict who can own shares of a professional corporation
In these cases, the seller should focus on maximising after-tax proceeds within the asset sale structure — through use of the capital dividend account on capital gains, proper allocation of goodwill vs. other asset categories, and careful distribution planning for the corporation's remaining assets after the sale.
When to Speak With a CPA
Sale structure planning should begin at least two years before the anticipated transaction. QSBC qualification, purification of passive assets, and the share structure of the corporation all affect the seller's ability to access the LCGE in a share sale. A CPA engaged only after the letter of intent is received has far less ability to optimise the outcome.
Rotaru CPA works with business owners on sale structure planning long before transactions occur. Book a consultation to assess your corporation's sale readiness.