The seller wants to sell their shares. The buyer wants to buy the assets. Both have good reasons.
And how this question gets settled can change the seller’s net by hundreds of thousands of dollars — which, for a Quebec SME with revenue of $3 million or more, often equals several years of EBITDA.
Both structures in a nutshell
In a business sale, there are two ways to structure the transaction.
Share sale
The seller sells their shares in the company. The buyer acquires the company — with everything inside.
It’s like selling a house “as is”: the buyer takes the walls, the roof, the lot, and everything in it — including the problems they can’t see yet.
Asset sale
The company sells its assets (equipment, inventory, goodwill, contracts) to the buyer. The buyer picks what they want — and leaves the rest.
It’s like selling the furniture and the appliances, but not the house itself.
The tax, legal, and practical consequences of these two structures are fundamentally different. It’s one of the most important decisions in tax planning for a Quebec SME business sale — and it gets made early in the process.
Share sale — pros and cons
For the seller: usually the preferred scenario
A share sale is generally more advantageous for the seller, for three reasons.
Favourable tax treatment. The gain on a share sale is treated as a capital gain — the most favourable tax treatment in Canada. Only a portion of the gain is taxable, based on the current capital gains inclusion rate.
Access to the exemption. If the conditions are met, the Lifetime Capital Gains Exemption (LCGE) can shelter more than a million dollars of gain from tax. That’s a massive advantage — and it isn’t available in an asset sale.
Relative simplicity. You transfer the shares, full stop. No need to transfer each asset individually, reassign contracts one by one, or negotiate how the price is allocated across different assets.
For the buyer: the risk
A buyer who acquires the shares inherits everything — not just the assets, but also:
- known and unknown liabilities
- the company’s historical tax obligations
- potential litigation
- existing contractual commitments
That’s why buyers often resist a share sale. The risk of inheriting an invisible problem is real.
A well-advised buyer will demand strong representations and warranties in the purchase and sale agreement to protect themselves — and sometimes, they’ll simply insist on buying the assets.
Asset sale — pros and cons
For the buyer: control
An asset sale is often the buyer’s preferred scenario.
They pick what they buy. The buyer selects the assets they want — equipment, inventory, customer base, contracts — and leaves what they don’t want. The risk of inherited liabilities is generally much lower — even though some obligations can still follow the assets or the operations (environmental, employees, indirect taxes, and so on).
They get a new cost base. The buyer can depreciate the acquired assets at their new acquisition cost — which gives them tax deductions for years to come. That’s a significant advantage that reduces their tax bill after the transaction.
For the seller: the tax cost
An asset sale is often less advantageous for the seller — sometimes significantly so.
A mixed tax treatment. Instead of a single capital gain, an asset sale can generate three types of income:
- a tax result on goodwill and Class 14.1 property that can include capital gain and, depending on the tax base, CCA recapture
- capital cost allowance recapture on depreciable property (equipment, vehicles) — taxed as ordinary income
- ordinary business income on inventory
- possible GST/QST consequences on the asset sale, subject to certain joint elections that may apply (Sources: Revenu Québec, Canada Revenue Agency)
Each type is taxed differently — and the mix rarely favours the seller.
The double-taxation mechanism. The sale proceeds go to the company — not directly to the seller. To take the money out personally, you typically have to pay a dividend or otherwise extract the funds. That can create an additional layer of tax at the personal level, depending on the structure chosen.
This mechanism can significantly reduce what the seller ends up keeping — well beyond a simple share sale.
No access to the LCGE. The Lifetime Capital Gains Exemption applies to the sale of qualified shares, not to an asset sale. It’s often the decisive argument for the seller.
Comparison table
| Dimension | Share sale | Asset sale |
|---|---|---|
| Seller’s tax treatment | Capital gain (favourable) | Mix: gain + recapture + ordinary income |
| LCGE access | Available (if conditions are met) | Not available |
| Inherited liabilities | Yes — the buyer takes it all | No — the buyer picks |
| Buyer’s control | Limited — the whole company | Full — asset by asset |
| Future depreciation (buyer) | No new cost base | New cost base = future deductions |
| Legal complexity | Simpler (one transfer) | More complex (asset by asset) |
| Typical position | Preferred by the seller | Preferred by the buyer |
How negotiation settles it
In practice, the shares-vs.-assets question rarely gets resolved in absolute terms. It’s a compromise — and the price adjusts to the structure that’s chosen.
Price and structure shape each other
A buyer who agrees to buy the shares — and therefore to take on the risk of inherited liabilities — will often ask for a lower price or stronger protections in exchange.
A seller who agrees to sell the assets — and therefore to accept a less favourable tax treatment — is entitled to ask for a higher price to make up for the tax gap.
What we model in Quebec SME deals is both scenarios in parallel. The seller’s net on a share sale. The seller’s net on an asset sale.
And at what price the asset sale becomes equivalent to the share sale for the seller.
That exercise is what lets you negotiate rationally — rather than fighting over principle.
When this question gets settled
The structure is negotiated in the letter of intent (LOI) — it’s one of the first items the buyer proposes.
Waiting until the purchase and sale agreement to debate the structure is too late. The price is already fixed — and it doesn’t necessarily reflect the right adjustment.
The role of professionals
The tax advisor models the impact of both structures on the seller’s net. The lawyer negotiates the legal protections that match the chosen structure. The business broker coordinates the whole thing and makes sure the compromise reflects economic reality — that’s a meaningful part of the value an intermediary brings to a Quebec SME transaction.
The best structure isn’t the one the seller prefers in theory. It’s the one that delivers the best net result — taking into account price, tax, and risk on both sides.
If you want to understand what both structures would look like for your business, a confidential valuation lets you model both scenarios.
Key takeaways:
- The seller generally prefers shares — favourable capital gain treatment + access to the LCGE
- The buyer often prefers assets — they pick what they buy, avoid liabilities, get future depreciation
- Price adjusts to the structure — an asset sale at a higher price can make up for the tax gap
- The structure is negotiated in the [LOI](/en/ma-glossary/letter-of-intent) — not at the end of the process
Consult your tax advisor to determine the optimal structure for your situation.
