Shares or assets: which choice to maximize the sale of your business?

When an entrepreneur decides to sell their business, a question arises very early: is it better to sell the shares or the assets? This choice, often underestimated, can lead to major differences in terms of taxation, legal risks, and net value derived from the transaction. A poor decision can significantly reduce the sale proceeds or unnecessarily complicate the transaction.

Beyond this, this decision directly affects what the entrepreneur wants to protect:

• Net value after tax: certain choices allow benefiting from major tax exemptions.
• Legal security: limiting exposure to known or unknown liabilities.
• Transaction fluidity: certain structures reassure buyers more and accelerate negotiations.

Choosing between selling shares or assets means deciding on the level of control, taxation, and security around the transaction.

Typical profiles

Profile 1: The cautious founder "I want to maximize the net price I'll receive after tax."

• Common mistake: believing that the displayed sale price is the amount actually received, without considering tax impacts or legal risks.

• Recommended strategy:
  
  • Favor the sale of shares to benefit from the capital gains exemption, if conditions are met.
  • Split the gain among family members via a trust to reduce overall tax.
  • Prepare a tax rollover to isolate certain assets (e.g., buildings or investments) before the sale.
  • Verify and document all contracts, leases, and agreements with key partners to avoid any questioning by the buyer.

• Advantages:
  
  • Significant reduction in taxes payable.
  • Preservation of family wealth and protection of strategic assets.
  • Strengthened credibility of the business in buyers' eyes.
  • Facilitated negotiation through transparency and prepared structure.

Profile 2: The worried buyer "I don't want to inherit hidden liabilities."

• Common mistake: assuming that superficial verification is sufficient for protection.

• Recommended strategy:
  
  • Opt for asset purchase to precisely select the assets acquired (clients, equipment, buildings) while leaving debts or liabilities with the sold company.
  • Document and clarify the value and transfer of assets.
  • Plan for warranties and insurance to cover potential liabilities.

• Advantages:
  
  • Increased legal security for both buyer and seller.
  • Complete control over transferred assets.
  • Tax depreciation of acquired assets for the buyer.
  • Reduced risk of post-transaction litigation.

Profile 3: The family business in transition "We want to sell to a buyer, but also protect family transmission."

• Common mistake: neglecting corporate planning, making certain tax reliefs inaccessible.

• Recommended strategy:
  
  • Create a family holding company to isolate certain assets and prepare transmission.
  • Implement an estate freeze to lock in share value and benefit from capital gains exemption for family members.
  • Prepare distribution of sale proceeds among heirs and family members in a tax-advantageous manner.
  • Document all shareholder agreements and governance accords.

• Advantages:
  
  • Maximization of tax exemptions.
  • Securing family transmission.
  • Enhanced transparency and confidence with external buyer.
  • Maintaining family harmony and limiting post-transaction conflicts.

Tax or legal levers used

1. Capital gains exemption

• Simple definition: a tax relief allowing a shareholder to sell their shares without tax on a significant portion of the gain (up to $971,000).

• How it works in practice: requires that shares be eligible (shares of a private company operating an active business in Canada, held for at least 24 months).

• Advantages: powerful tool to reduce exit tax.

• Example: a sole shareholder who sells for $1.5M can save nearly $250,000 in tax thanks to the exemption.

2. Tax rollover (Section 85 ITA)

• Simple definition: mechanism allowing transfer of assets or shares to another company (e.g., holding company) without immediately generating tax.

• How it works in practice: used to prepare the sale by isolating certain assets (e.g., building) and selling only the operating company.

• Advantages: flexibility, tax optimization, family wealth protection.

• Example: an entrepreneur removes their commercial building from the company being sold, keeps it in their holding company, and sells only the operation.

3. Sale of depreciable assets

• Simple definition: disposition where the buyer takes over assets such as equipment, inventory, or buildings.

• How it works in practice: each asset sold triggers distinct taxation (business income, capital gain, depreciation recapture).*

• Advantages: allows the buyer to depreciate the assets, but often generates a higher tax bill for the seller.

• Example: a seller who disposes mainly of equipment risks paying more tax than by selling shares.

Practical case 

A Quebec entrepreneur wanted to sell after 25 years of activity. His company held equipment, a building, and a loyal clientele. After analysis, the structure was reorganized: the building was transferred to a holding company through a tax rollover, then the sale was completed as a share transfer. Result: he benefited from the capital gains exemption and saved on taxes, while retaining full ownership of his building.

What we often forget

• Latent tax liabilities: insufficient verification can leave room for claims after the sale.
• Exemption eligibility: some businesses believe they are eligible when they don't meet all the conditions.
• Psychological preparation of the seller: underestimating the importance of detaching from assets one wishes to keep (building, key clientele).

Essential questions to ask yourself

• Is my business eligible for the capital gains exemption?
• Would it be better for me to keep certain assets in a holding company?
• Will the buyer be more attracted to an asset sale or share sale?
• Have I had my tax structure reviewed by a specialist before starting negotiations?
• Am I ready to justify my company's value and structure?

Not planning the choice between selling shares and assets means risking losing hundreds of thousands of dollars in taxes, seeing a buyer withdraw when faced with a risky structure, or complicating a family transmission. The result: a slower, more expensive, and sometimes compromised transaction.

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The choice between selling shares or assets is not just a matter of preference: it's a strategic decision that determines the real value of the transaction. Plan early, analyze precisely, and use the right tax and legal levers: this is the key to transforming a sale into true success.