Generally, there are two basic structures that can be used in the purchase and sale of a business:

  1. acquisition of the assets of the business from the operating corporation (an Asset Deal); or
  2. acquisition of the shares of the operating corporation from the corporation’s shareholders (a Share Deal).

In some cases, commercial considerations will be determinative of the structure – if, for example, the target corporation holds critical licenses that cannot be transferred to the purchaser on an Asset Deal. In other cases, tax considerations will be determinative of the structure – if, for example, the target corporation has substantial tax losses that could be utilized by the purchaser, a Share Deal may be preferable. In other cases still, the relative preference of the purchaser and vendor for either a Share Deal or an Asset Deal will factor into the negotiations. Below are some of the most important considerations that every potential purchaser and vendor should contemplate.


In a Share Deal, the purchaser will acquire the corporation, including all of its inherent liabilities. This generally includes the liability for taxes. In an Asset Deal, the purchaser will generally only inherit those liabilities that it specifically assumes pursuant to the terms of the asset purchase agreement. Some liabilities, such as environmental liabilities, may follow the related assets without a specific assumption in the asset purchase agreement. Where the purchaser is reluctant to acquire certain liabilities of the target corporation, the purchaser will generally prefer an Asset Deal.


In a Share Deal, the purchaser has very limited flexibility in which assets of the target corporation it acquires. The purchaser will acquire the shares of the target corporation and will therefore indirectly take ownership of all of the target corporation’s assets. In an Asset Deal, the purchaser has the flexibility as to which particular assets it wants to acquire. Many purchasers prefer an Asset Deal due to this greater amount of flexibility.

Tax cost of assets

On an Asset Deal, a value must be assigned to each asset that is being purchased. Frequently, a purchase price is set for the business as a whole, and the cost allocation for each asset is performed at a later time.

Generally, the purchaser will want to allocate a higher amount to assets which have a high rate of tax depreciation. This would allow the purchaser to claim greater deductions against any income earned in the business going forward. On the other hand, a vendor will generally want to allocate a lower amount to assets which have a high rate of tax depreciation to avoid “recapture” of previously claimed depreciation. In an Asset Deal, careful negotiation is required to balance these two directly competing interests.

This issue does not arise in a Share Deal. The tax cost of each asset remains the same both before and after the purchase of the target corporation’s shares, as ownership of the assets remains with the target corporation. For this reason, a Share Deal is often times much simpler to execute than an Asset Deal but does not give the purchaser the ability to “step up” the tax cost of assets to their fair market value (unless certain elective provisions in the Income Tax Act (Canada) apply).

Capital gains

In a Share Deal, the sale will generally give rise to a capital gain of the vendor, of which only 50% is taxable. The vendor may be able to offset the capital gain on the sale with available capital losses to decrease the tax burden. In addition, the vendor may be able to use the lifetime capital gains exemption to shelter all or a portion of the gain arising from the sale of the shares.

An Asset Deal may result in both capital gains and income inclusions to the selling corporation. Additional tax may be incurred on the distribution of the sale proceeds by the selling corporation to is shareholders. A Share Deal is often preferred by vendors as it could result in a lower overall tax bill than an Asset Deal.


The decision to structure an acquisition as either an Asset Deal or a Share Deal is an important one and should be determined on a case by case basis. As can be seen, the interests of purchasers and vendors often directly compete and effective negotiation is required to balance these interests. Careful contemplation of all considerations should be undertaken prior to determining the structure of any deal.

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