Selling your business:  ASSET SALE  or  SHARE SALE Contributed by Sunbelt Business Brokers Contact:  Barbara Sloan, Sales Representative,     barbarasloan@sunbeltnetwork.com BACKGROUND: The majority of small businesses we sell are set up as Corporations (as opposed to a Sole Proprietorship or a Partnership).  Usually one person owns 100% of the shares and takes a salary from the company.  If this is your situation, one of the first decisions you will need to make is whether to sell your business as an asset sale or a share deal - that is, if you are just selling the assets of your business, or if you are selling the company/the shares of the corporation. Asset Sale - When you sell everything in the company but NOT your incorporated company Possible Advantages Possible Disadvantages Buyer has no legal liability for the corporation prior to the purchase Amount paid for the assets at market value can be depreciated by the Buyer and are often higher than their book value If the business had a negative past, Buyer starts with "clean" credit, reputation, workers comp, etc. Buyer has to establish new credit with suppliers Buyer may still have liability for employees that firing and re-hiring cannot prevent Buyer and Seller must negotiate transfer of leases & contracts Licenses usually in company name and not transferable. Buyer needs to apply for new ones Seller cannot take advantage of $500,000 capital gains tax exemption   Share Sale - When you sell your incorporated company and everything in it Possible Advantages Possible Disadvantages Company already has established credit Leases are in place – no transfer required Contracts and licenses are in place As there is no change of "employer", employees remain employed and are in place, with worker's comp rate established No public notification of the sale Seller can use $500,000 per shareholder capital gains exemption on shares of small business Corporation, tax & employment numbers & documentation remain as is Ability to utilize previous company losses Buyer assumes the history and liabilities of the business prior to ownership. This can include tax, product, environmental or employee liability Assets are normally fully depreciated Sometimes share sale is a hard sell to CPA's & lawyers who are focused on protecting their client and not on the potential of the business. Seller will be asked to provide wider protections by the Buyer in the Purchase & Sale Agreement. This could include personal guarantees by the Seller and spouse for liability issues which surface post-purchase and/or money held in escrow. The Heritage, 5045 Orbitor Drive, Building 9, Suite 100, Mississauga, Ontario, L4W 4Y4 Tel: (905) 602-5003     Fax: (905) 602-9367     www.sunbeltnetwork.com/torontowest

 Disclaimer 
This article is for general information purposes only and does not constitute legal, accounting or other professional advice.   Important financial and legal decisions should be made only after seeking appropriate professional advice based on your specific situation.