Selling a business can be a stressful process filled with uncertainty. One major source of uncertainty often relates to whether one should sell the company’s assets or shares. There are different implications based on what is received as consideration, and as such business owners must determine which method more suitable.
Sale of assets
- Assets can be sold in exchange for cash, other assets, shares, etc.
- Proceeds are immediately recognized; assets are recorded at market value, shares are recorded based on ownership.
- Company liabilities are typically not transferred.
- An asset sale may lead to a capital gain, increasing the company’s taxes payable.
- Not eligible for lifetime capital gains exemption.
- The ownership of the company does not change.
Sale of shares
- Share sales result in the transfer of the company’s assets and liabilities and retained earnings.
- Cash proceeds may result in a capital gain, increasing one’s personal taxes payable.
- If shares are received, tax is deferred until the new shares are sold.
- It can be difficult to find a buyer as more risk is undertaken.
- Can use non-capital losses from prior years if operating the business in the same industry.
- May be eligible for the lifetime capital gains exemption of up to $883,384 if you have qualified small business corporation (QSBC) shares, possibly leaving you with no taxes payable.
- The ownership of the company is transferred to the buyer.
This is only a brief summary of the notable points that come up when debating between selling a company’s assets and shares. We understand that it can be a difficult process, but hopefully this summary brought some clarity to the topic.
Caroline Pan, B.Sc, CPA is the assurance partner of Accel Professional Corporation.