Asset Sale vs Share Sale
One of the most impactful questions an owner needs to answer prior to initiating the sale of her business is whether the sale will be an Asset Sale or a Share Sale. The best time to answer this question is at the establishment of your business.
Why is it so important? There will be many decisions that you, as a business owner will need to make about your business that may be dependent on how your business may ultimately be sold. For instance, setting up a more complex business structure to multiply your capital gains exemption would not be necessary if your business was going to sell its assets.
Here are a few more key differences to consider:
|
Share Sale |
Asset Sale |
|---|---|
| A share sale is the transfer of ownership of the company itself along with all assets and liabilities contained within it. | An asset sale is a transfer of ownership of each individual asset and may require changes to items such as permits, licenses, leases, intellectual property etc. |
| In a share sale the purchaser is assuming the liabilities of the company as well as any historical tax balances associated with the assets or the business itself. | In an asset sale, the buyer is purchasing an asset of the business and not assuming the sellers debt or tax history associated with that asset. |
| In a share sale all employees maintain their employment within the company. If a buyer doesn’t wish to keep certain employees they will be required to terminate and pay severance. | In an asset sale where a business owner is retiring, the company will likely cease operations and the owner will need to account for all human resource provisions for employees. |
| A share sale allows the seller to take advantage of preferential tax treatment by using the lifetime taxable capital gains exemption. | Many portions of an asset sale have tax implications that may include capital gains tax, recaptured depreciation, and dividend tax to take the money out of the company. |
Regardless of when you started your business and how it’s currently structured, the right time to begin thinking about your business structure as it pertains to the future sale of that business is today. Talk to your professional advisor to find out what you can do to ensure the transfer of ownership of your business is as seamless and profitable as possible.
