An asset purchase agreement lets a buyer take specific assets and liabilities of a target while leaving the rest with the seller — and, unlike a share purchase, it can unlock CSBFP-backed acquisition financing that a share deal cannot use at all.
The buyer's discretion over what it takes on is contractual, not automatic: "nothing forces a buyer to assume a particular contract just because the rest of the business is being sold" — the assumed-contracts schedule is negotiable, though excluding a contract tied to an essential supplier or customer relationship may just mean renegotiating a new agreement with that same counterparty after closing, on less favourable terms, since the buyer approaches them as a new, unproven customer rather than the incumbent.
Two federal regimes treat an asset purchase very differently from a share purchase, and both cut in a fund's favour. On tax: under the Excise Tax Act, s. 167(1) lets the buyer and seller jointly elect that no GST/HST is payable on a qualifying sale of "all or substantially all" of a business's necessary property, and separately, s. 167.1 keeps goodwill outside GST/HST calculations entirely. On financing: the federal government-guaranteed Canada Small Business Financing Program will not touch a share deal at all — ISED's own guidance says a loan cannot finance "items such as share purchases or assets that a holding company acquires," while "the purchase of eligible assets of an existing business may qualify for financing under the CSBFP," at the lesser of purchase cost and appraised value. A seller who insists on a share sale for capital-gains reasons is, in the same breath, closing off that financing route for the buyer.
An independent sponsor structures a $4M acquisition as an asset purchase specifically so its lender can use CSBFP-backed financing against the target's equipment and leasehold improvements — a sub-limit capped at $500,000 within the program's $1M term-loan ceiling — financing that would not have been available at all had the deal instead been structured as a purchase of the target's shares. Buyer and seller jointly elect under ETA s. 167 so no GST/HST applies to the qualifying business property changing hands, and the goodwill component of the price is outside GST/HST scope regardless, under s. 167.1. The buyer leaves one legacy supply contract behind on unfavourable terms and renegotiates directly with that supplier after closing, on terms better suited to the ongoing relationship.
See also: Holdback · Holding company.
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