You have found the business to take over, the seller is open, discussions are moving forward. Then comes a question many buyers discover too late: are you buying the corporation’s shares, or only its assets?
Two paths to the same business, but two radically different transactions. This choice determines what you take on, what you leave behind, what each party will pay in taxes and, very often, the price itself.
Two ways to buy the same business
By buying the shares, you become the owner of the corporation itself. For the business, nothing changes: same contracts, same permits, same employees. But its entire past follows you too, its debts, its tax obligations, its lawsuits, disclosed or not.
By buying the assets, you pick and choose. You take over the equipment, the inventory, the clientele, the name and the contracts that interest you, and you leave the shell with the seller, along with its history and its risks.
The image is simple: buying the shares is buying the house with everything in it, including whatever is hiding in the walls. Buying the assets is choosing, room by room, what you take with you.
Why the seller prefers to sell shares
For the seller, a share sale is almost always the preferred route: the proceeds are generally taxed as a capital gain and, when the shares qualify, an exemption can substantially lighten the tax bill. We explored those mechanics in another article in this series.
Add simplicity to that: a single transaction, and the seller turns the page. The corporation leaves with its contracts, its employees and its obligations.
Why the buyer prefers assets
For the buyer, the logic is reversed. By taking over the assets, the buyer sets aside the accumulated risks: prior debts, potential claims and surprises from the past remain, in principle, with the seller.
An asset purchase also offers a very tangible tax advantage: the cost of the acquired property is stepped up to its purchase value, which allows for more generous depreciation in the years that follow.
When a share purchase is unavoidable
Sometimes, however, the buyer has little real choice: certain permits, licences or strategic contracts cannot be transferred and survive only if the corporation stays in place. A few signals to watch for:
- contracts that prohibit any assignment but tolerate a change of shareholders;
- change-of-control clauses to read carefully before closing;
- a track record of tenders, certifications or seniority that is impossible to recreate;
- operational continuity that clients, suppliers and lenders take for granted.
In those situations, continuity is worth more than sorting: you buy the shares and manage the risks another way, through due diligence, the seller’s warranties and holdbacks on the price.
Key takeaways before structuring your offer
Shares: the entire past
You buy the whole corporation, with its history and its commitments, known or not.
Due diligence and the seller’s warranties become your main protections.
Assets: the sorting
You choose what you take over and leave the rest in the seller’s shell.
In exchange, every asset, every lease and every contract must be assigned or consented to, one by one.
A choice that gets negotiated
The tax gap between the two structures never disappears: it shifts from one party to the other.
It becomes a bargaining lever that is reflected directly in the price.
The friction points of an asset purchase
While an asset purchase protects the buyer, it complicates the transaction. Every lease, every contract, every licence must be assigned individually, often with the consent of the landlord or the counterparty. A third party who refuses can delay the closing, or even cut into the value of what you are buying.
On the employee side, Québec has its own rules: the sale of the business does not break the employment relationship. The Civil Code of Québec provides for the continuity of employment contracts and the Labour Code protects union certification. The team and its working conditions follow the business, whatever structure you choose.
Finally, depending on the mix of assets and the elections available under the law, GST and QST may or may not apply: a mechanism to validate before signing, not after.
A choice to settle before the letter of intent
Each structure creates a tax winner and a tax loser, and that gap gets negotiated: a seller who agrees to an asset sale will often ask for more to offset the tax; a buyer who accepts the shares will demand a price adjustment, extended warranties or a holdback.
That is precisely why the question must be settled before the letter of intent. Once the structure is set down in black and white, renegotiating it means reopening the entire deal, with the loss of credibility that entails.
Why consult a lawyer before structuring your acquisition?
The right choice cannot be guessed: it flows from the nature of the business, its contracts, its liabilities, your financing and the tax situation of both parties.
At Meka Avocat, we guide buyers and sellers through buying and selling a business, from the letter of intent to closing. We work hand in hand with your tax advisors so that the chosen structure serves your interests instead of mortgaging them.
Frequently asked questions
Is it better to buy the shares or the assets of a business?
It depends which side you are on. The buyer generally prefers assets, because he picks what he takes and leaves the unknown liabilities behind. The seller generally prefers shares, because selling qualifying shares can open access to the capital gains exemption. The choice is settled before the letter of intent, not after.
What exactly does a buyer take on in a share purchase?
Everything, including what he does not know about: the contracts, the employees, the pending litigation, the tax claims and the defects in the corporate past. That is why a share purchase calls for deeper due diligence and broader representations and warranties.
Why is an asset purchase heavier to execute?
Because each item transfers individually. Key contracts often need the counterparty's consent to be assigned, the commercial lease needs the landlord's agreement, permits have to be re-issued and employees are re-hired. The structure is safer, but execution takes longer.
Is the choice between shares and assets negotiable?
Yes, and it is part of the price. A seller who agrees to sell assets loses a tax advantage and generally charges for it. A buyer who accepts shares asks in return for broader warranties, a price holdback or an escrow of part of the price.
Is your takeover project taking shape?
Before signing a letter of intent, have the structure of your transaction validated. A consultation helps identify the risks specific to the target business and choose the path that truly works in your favour.
The choice between shares and assets is never made in isolation: it depends on what due diligence uncovers, on the tax bill the seller ends up with, covered in selling your business without handing half of it to the tax authorities, and, where leases are involved, on what the commercial lease allows, and our mergers and acquisitions practice. For a buyer going through immigration, the choice gets harder: see the impact of that choice on your eligibility.
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Lawyer, member of the Barreau du Québec since 2014, founder of MEKA AVOCAT. This text sets out general legal information: it describes rules that apply broadly, not the answer to one particular case, and does not replace advice on your situation.
