You’ve worked hard to build your business and establish your legacy. Now it’s time to reap the rewards, and think about how you’re going to sell your business. While the end result of selling a business is the most desirable, the process can be stressful because of all the uncertainty you face as a business owner.
One of these uncertainties is whether you should sell the company’s assets or shares. There are different implications based on what is received as consideration, and you must determine which method is more suitable for you.
Sale of Assets
In asset sales, the transaction is actually the sum of the sales of each of the individual assets of the business and an assumption of agreed-upon liabilities.
Ownership of company does not change.
Can be easier to find a buyer (or multiple buyers for different assets), as buyers can selectively purchase only the assets they want.
Assets can be sold in exchange for cash, other assets, shares, etc.
Company liabilities are typically not transferred, unless they have been previously agreed-upon.
Proceeds are immediately recognized, with each individual asset being recorded at market value
Asset sale may lead to a capital gain, increasing the company’s taxes payable.
Not eligible for lifetime capital gains exemption.
Sale of shares
In share sales, the transaction results in a transfer of the ownership of the business entity itself, but the entity continues to own the same assets and have the same liabilities.
Ownership of company is transferred to buyer.
Can be difficult to find a buyer, as more risk is undertaken, and not all components of your business may be seen as equally valuable.
Share sales result in the transfer of the company’s assets, liabilities, and retained earnings.
Cash proceeds may result in a capital gain, increasing your personal taxes payable.
If shares are received, tax is deferred until the new shares are sold.
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.
Schedule a meeting
Making the decision between selling the company’s assets or shares can have significant tax and other business-related consequences for both the buyer and seller. Both parties should explore and consider the benefits and consequences of each type of transaction, to determine whether an asset purchase or stock purchase transaction best suits their wants and needs.
Contact Arria CPA for a free, no-obligation consultation to learn more about how we can help you navigate the uncertainties of selling your business, ensuring you make a well-informed decision to protect your legacy.
Disclaimer: Please note that this is only a brief summary and is based on current accounting regulations and tax law interpretations. Accounting regulations and tax laws are subject to continual review and change, so should the facts provided to us be inaccurate or incomplete, or should the law or its interpretation change, our summary may be inappropriate for your uses. This article is written for educational purposes only, and as such, we recommend you consult a professional before making an accounting or tax decision. If you have any concerns, or would like further consultation regarding this matter, please contact us.
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