Guides for owners · 8 min read

Asset sale vs share sale in Canada: what owners should know

By Colton Doan, founder of Sellvara · Updated October 30, 2026

When you sell a business in Canada, one of the biggest decisions is what the buyer is actually buying. In an asset sale, they buy the things the business owns. In a share sale, they buy the company itself. The choice affects how much tax you pay, what risks you keep, and how easy the deal is to finance, so it's often one of the main points negotiated in the letter of intent.

This guide explains the difference in plain language. The tax rules are detailed and change from time to time, so treat it as a starting point for a conversation with your accountant, not a substitute for one.

What's an asset sale?

In an asset sale, the buyer buys selected assets from the business: equipment, inventory, customer lists, the business name, contracts, and goodwill. Your company (or you, if you're a sole proprietor) receives the money and keeps anything the buyer doesn't take, including most liabilities, such as debts, old tax issues and past claims.

If you run your business as a sole proprietorship or partnership, an asset sale is usually your only option, because there are no shares to sell.

What's a share sale?

In a share sale, the buyer buys the shares of your corporation from you. The company keeps operating as before, with the same contracts, permits, employees, bank accounts, and its history, including any liabilities. Only the owner changes.

Why buyers often prefer asset sales

• They leave old liabilities behind. The buyer picks what they take and doesn't inherit unknown problems from the company's past.
• They get better tax deductions. The buyer can generally claim depreciation (capital cost allowance) on the price they paid for the assets, which reduces their future taxes.
• It's simpler to check. There's less history to investigate in due diligence.

Why sellers often prefer share sales

• Possible tax savings. If your shares qualify, you may be able to claim the lifetime capital gains exemption (LCGE) on part of your gain. The exemption is currently $1.25 million per person for qualified small business corporation shares, and it isn't available on an asset sale by your company. If family members also own shares, each may be able to claim their own exemption.
• A cleaner exit. The buyer takes the company as a whole, so you're not left with a corporation holding leftover cash, liabilities and paperwork.
• Contracts usually stay in place, although some contracts and leases have "change of control" clauses that still need the other party's consent.

Qualifying for the lifetime capital gains exemption

Whether your shares qualify depends on detailed tests. In broad terms:

• the company must be a Canadian-controlled private corporation;
• at the time of sale, all or substantially all (generally 90% or more) of its assets must be used mainly in an active business carried on in Canada;
• during the 24 months before the sale, more than 50% of its assets must have been used that way;
• the shares generally must not have been owned by anyone other than you or a related person during those 24 months.

A common problem is a company that has built up surplus cash or investments it doesn't need for the business, which can cause it to fail the tests. Your accountant may be able to "purify" the company before the sale by moving those assets out, but this takes planning and sometimes time, which is why it's worth raising early.

Taxes on an asset sale

When your company sells assets, the tax depends on the type of asset:

• Equipment and other depreciable property: if the price is higher than the value left after past depreciation claims, the company may have to pay back some of those deductions as income ("recapture").
• Goodwill and other intangible assets: generally taxed similarly to a capital gain.
• Inventory: taxed as ordinary business income.

Then there's a second step: the money is in your company, not your pocket. Taking it out, usually as dividends, can mean more tax. That's why the same price can leave you with noticeably less after tax in an asset sale than a share sale. How the price is allocated between asset types also matters to both sides, and is often negotiated.

GST/HST: an asset sale can attract GST/HST, but when a buyer acquires all or substantially all of the property needed to carry on the business, the buyer and seller can often file a joint election (commonly called a section 167 election) so no tax is charged on the transfer. Ask your accountant whether it applies.

Risk and protection in a share sale

Because the buyer takes the company with its history, they'll want protection. Expect the purchase agreement to include:

• Representations and warranties: your written statements about the company's condition, such as that its taxes are filed and there are no undisclosed lawsuits.
• Indemnities: your promise to pay the buyer back if those statements turn out to be wrong.
• Holdbacks or escrow: part of the price held back for a period to cover possible claims.

These are normal, but the details matter a lot. They're where your lawyer earns their fee.

How the difference affects the price

Because each structure shifts tax and risk differently, buyers and sellers sometimes meet in the middle on price. A buyer may pay more for an asset sale, or a seller may accept a little less for a share sale and still come out ahead after tax. Some deals combine the two. The only way to compare offers properly is to have your accountant work out what you'd actually keep under each one.

Questions to ask your accountant early

• Is my business a corporation, and could I sell shares?
• Do my shares qualify for the lifetime capital gains exemption today? If not, what would it take?
• Can family members who own shares also use the exemption?
• Roughly what would I keep after tax from a share sale vs an asset sale at the same price?
• Should we do any planning before I list the business?

Common questions

What is the difference between an asset sale and a share sale?

In an asset sale, the buyer buys selected assets of the business. In a share sale, the buyer buys the shares of the corporation, taking over the whole company, including its history and liabilities.

Why do sellers in Canada often prefer a share sale?

Mainly tax: if the shares qualify, the seller may be able to use the lifetime capital gains exemption, which isn't available when a company sells its assets. A share sale can also be a cleaner exit.

Can a sole proprietor do a share sale?

No. A sole proprietorship or partnership has no shares, so the business is sold as assets.

Next steps

Read our guide on how to sell a small business in Canada for where this decision fits in the overall process, or the 12-month checklist for what to prepare before you sell.

This guide is general information, not legal, tax or financial advice. Every sale is different: talk to your own accountant and lawyer before you decide.