There are 2 basic structures used when structuring the sale of a closely held operating corporation. A share sale, where the individual shares of a corporation are purchased and the corporation continues, and an asset sale. This is a basic explanation; certain transactions will be much more involved with many different aspects. When in doubt speak to legal and tax advisors.
Share Sale
In General terms, if you are a vendor of a closely held corporation, it can be advisable to structure your sale as a share sale. The Canadian Controlled Private Corporation capital gains exemption for a transaction structured in this way is up to $800,000 per person. Share sales keep the business going as a going concern, along with all existing liability. A purchaser essentially steps into the shoes of the vendor shareholder. The Vendor in this circumstance wants to be careful to limit the representations and warranties they agree to in the overriding agreement.
Asset Sale
In Contrast, many purchasers prefer to structure business transactions as an asset purchase. Different assets of the corporation are purchased- such as its books and records, name, accounts receivable, equipment and inventory. The liabilities do not generally flow to the purchaser (with some exceptions such as if a WCB clearance certificate is not obtained or there are security interests registered).
If you require advice in the sale of a business, please feel free to contact us.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.
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