Selling Your Business — Shares vs Assets

Introduction
Understanding selling your business shares vs assets is one of the most important decisions an entrepreneur will ever make. The structure of the sale—whether you sell the shares of your corporation or the assets inside it—directly affects taxes, legal liability, negotiation leverage, pricing and the future of the business. Buyers and sellers often have opposite preferences: sellers typically prefer a share sale because it provides major tax benefits, while buyers often prefer an asset sale to reduce risk and claim higher tax deductions. Québec adds another layer of tax considerations through provincial legislation. Because selling your business shares vs assets involves complex corporate, legal and tax consequences, choosing the right structure can save (or cost) hundreds of thousands of dollars. This guide provides a full explanation of the tax, legal and financial implications for business owners preparing for a sale.

Legal and Regulatory Framework
Selling your business shares vs assets is governed by the Income Tax Act, the Excise Tax Act, provincial legislation, Québec’s Taxation Act and corporate law. A share sale involves the buyer acquiring the corporation as a legal entity—including its assets, liabilities, contracts, permits and obligations. The seller receives proceeds for the sale of shares, which typically generate capital gains. In many cases, Canadian shareholders can claim the Lifetime Capital Gains Exemption (LCGE) on qualifying small business corporation shares, potentially exempting over $1 million of capital gains from tax.

An asset sale involves the buyer acquiring selected business assets such as equipment, inventory, goodwill, customer lists or intellectual property. The corporation receives the sale proceeds, which are subject to corporate tax. After tax, funds can be withdrawn by shareholders, potentially causing double taxation. GST/HST or QST may apply to certain asset categories.

Québec imposes additional rules on goodwill, capital property, QST application and provincial LCGE qualification. Understanding selling your business shares vs assets requires structuring the transaction within federal and provincial rules to ensure compliance and maximize tax benefits.

Key Court Decisions
Court rulings have shaped how selling your business shares vs assets is interpreted. Several decisions clarified whether shares qualify for the Lifetime Capital Gains Exemption, emphasizing that corporations must meet specific active business asset thresholds and holding-period rules. Courts have denied LCGE claims where corporations held too many passive investments or where shares did not meet the definition of qualifying small business corporation shares.

Other cases addressed the transfer of goodwill in asset sales, ruling that goodwill is an eligible capital property subject to specific tax treatment. Courts have also ruled on the allocation of purchase price among assets, confirming that buyers and sellers must use reasonable allocations to prevent disputes and reassessments. Québec decisions reinforced requirements for LCGE eligibility and proper QST treatment on asset transfers. These rulings show the importance of professional structuring when selling your business shares vs assets.

Why CRA Targets This Issue
The CRA reviews business sale transactions closely because selling your business shares vs assets has major tax consequences. Common audit triggers include:
• LCGE claims without proper documentation
• asset-sale allocations that artificially minimize taxes
• goodwill valuations inconsistent with financial performance
• transactions involving related parties
• incorrect tax treatment of non-compete payments
• failure to apply GST/HST or QST on asset transfers
• inadequate corporate purification before share sale

CRA auditors verify financial records, corporate structure, valuation reports, contracts and tax elections. Québec performs its own review to ensure provincial requirements are met. Because selling your business shares vs assets can significantly affect tax revenue, the CRA enforces strict compliance.

Mackisen Strategy
Mackisen CPA provides a full strategic framework for selling your business shares vs assets. Our role begins long before the sale, preparing the corporation for optimal tax treatment. We:
• analyze whether a share sale or asset sale is more favourable
• determine LCGE eligibility and purify corporate assets when necessary
• model tax outcomes under both sale structures
• assist in allocating asset purchase price in compliance with CRA rules
• prepare capital gains calculations and tax minimization strategies
• confirm GST/HST/QST applicability to asset transactions
• structure shareholder compensation, earnout payments and purchase terms
• coordinate with legal counsel, valuation specialists and brokers

Our goal is to ensure business owners maximize after-tax proceeds while maintaining full federal and Québec compliance.

Real Client Experience
Many entrepreneurs come to Mackisen unsure whether selling your business shares vs assets is best for them. One business owner received an offer for an asset sale and assumed it was equivalent to a share sale. Mackisen recalculated tax implications and showed that after tax, the seller would lose nearly 40 percent of proceeds under an asset sale. We renegotiated the structure as a share sale and allowed the client to claim the LCGE, saving over $900,000 in taxes.

Another client attempted to sell shares but did not qualify for LCGE due to excess passive assets. We purified the corporation over several months and restored eligibility. A Québec business owner faced QST complications on asset transfers; Mackisen corrected purchase price allocations and prevented penalties. Another entrepreneur sold goodwill without understanding its tax implications. We recalculated capital gains and applied proper elections, significantly reducing tax payable. These experiences show why professional guidance is crucial when selling your business shares vs assets.

Common Questions
Business owners frequently ask whether a share sale or asset sale is better. For sellers, a share sale is typically better because of the LCGE and reduced double taxation. For buyers, an asset sale is often better because it reduces liability risks and increases tax deductions.

Another common question is whether all businesses qualify for the LCGE. Only qualifying small business corporation shares qualify, subject to strict asset and holding-period rules. Many ask whether goodwill is taxable. Goodwill is taxable but receives favourable treatment in a share sale. Québec owners ask whether provincial LCGE rules differ. Québec largely aligns with federal rules but requires separate qualification. Understanding these questions helps clarify selling your business shares vs assets.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When selling your business shares vs assets, Mackisen provides deep tax planning, full modelling of scenarios, LCGE preparation and full transaction support to ensure business owners maximize their after-tax proceeds safely and strategically.