In an asset sale, the buyer purchases specific assets and liabilities of the business; in a share sale, they purchase the shares of the corporation itself, a structural distinction with significant tax consequences for both sides.
Sellers almost always prefer a share sale. The proceeds are taxed as a capital gain rather than business income, the Lifetime Capital Gains Exemption may be available to shelter a significant portion of the gain, and the transaction is cleaner, the corporate entity and its history transfer intact. Buyers almost always prefer an asset sale. They acquire only what they choose, leave behind unknown or unwanted liabilities, and receive a stepped-up cost base on the acquired assets that generates future tax deductions.
The negotiation between those two preferences is one of the most consequential in any private business transaction. The tax difference to a seller between a share sale and an asset sale can be significant. A buyer who insists on an asset sale structure is effectively asking the seller to absorb a tax cost that benefits the buyer, which typically requires a price adjustment to compensate. Understanding both positions before the negotiation begins allows the seller to respond from a position of knowledge rather than react from one of surprise.
See also: Lifetime Capital Gains Exemption (LCGE) · Purchase Price Allocation · GoodwillThe share versus asset sale decision is one of the most consequential structural choices in any transaction. See how Wefinx approaches exit planning.