The two structures aren't stylistic choices. Six separate regimes treat a share sale and an asset sale differently, and almost all of them favour the vendor on one side and the buyer on the other.
Key takeaways
Every mid-market deal eventually runs into the same negotiation: the vendor's advisor pushes for a sale of shares, the buyer's advisor pushes for a sale of assets, and both are right from where they're sitting. The disagreement isn't about price. It's that six different legal and tax regimes — income tax, sales tax, corporate law, employment law, provincial sales tax and lender eligibility — treat the two structures differently, and most of those differences run in opposite directions for the two sides of the table.
A share sale is a disposition by an individual (or a holding company) of shares that are capital property. Where the shares are qualified small business corporation shares, ITA s. 110.6(2.1) lets the individual claim the lifetime capital gains exemption — a deduction the Act caps, under s. 110.6(2)(a)'s formula, at $625,000 of taxable capital gain. Because ITA s. 38(a) sets the taxable portion of a capital gain at one-half, that statutory $625,000 corresponds to a gross capital gain of $1,250,000 sheltered entirely from tax. The amount indexes to the Consumer Price Index for taxation years beginning after 2025 under s. 117.1(2)(c) — confirm the current indexed figure before relying on it; this article states only the statutory base amount and the mechanism, not a current-year number.
That exemption is available only to an individual disposing of shares. It does not exist for a corporation disposing of its own assets. An asset sale realizes the gain inside the corporation, where no equivalent shelter applies, and a second layer of tax typically falls on the shareholder when the after-tax sale proceeds are eventually extracted as a dividend. The vendor's preference for a share sale is, in large part, simply a preference for being taxed once instead of twice, with a real chance of not being taxed at all on the first $1,250,000 of gain.
The same $1,250,000 gain, two structures
Share sale, QSBC shares held by an individual: gross gain $1,250,000 → taxable gain $625,000 (ITA s. 38(a)) → s. 110.6(2.1) deduction available up to $625,000 → the shelterable portion can be taxed at nil, subject to the individual's annual and cumulative gains limits and any cumulative net investment loss under s. 110.6(1).
Asset sale, same $1,250,000 gain realized by the corporation: no s. 110.6 deduction is available to the corporation at all — the exemption is not a corporate-level relief. The gain is taxed inside the corporation, and the shareholder faces a further layer of tax when the remaining after-tax proceeds are paid out.
A buyer taking assets chooses which liabilities to assume and which to leave with the seller — see which assets to exclude from an asset purchase for how that list is actually built. A buyer taking shares acquires the corporation as it stands: every contract, every tax filing, every historical liability, known or not yet discovered, comes along with the share certificate. Diligence can narrow the risk and a representations-and-warranties package with an indemnity can price it, but it cannot make the exposure disappear the way simply not buying the liability-bearing entity can.
Sales tax reinforces the split. Under ETA s. 167(1), a buyer acquiring “all or substantially all of the property that can reasonably be regarded as being necessary” to carry on the business can jointly elect with the seller so that no GST/HST is payable on the qualifying assets — and goodwill is excluded from tax entirely under s. 167.1 regardless of the election. A share sale is simply outside the scope of GST/HST as a supply of a financial instrument, so the election question never arises — a different mechanism, same practical result, but it is not a reason on its own to prefer one structure over the other.
A share sale is a private transaction between the selling shareholders and the buyer. The corporation itself is not a party, and no corporate-law vote is required for the shareholders to sell what they own. An asset sale is different in kind: CBCA s. 189(3) requires that “a sale, lease or exchange of all or substantially all the property of a corporation other than in the ordinary course of business” be approved by special resolution — a two-thirds vote under s. 2(1) — and s. 189(6) gives every share a vote on that resolution “whether or not it otherwise carries the right to vote,” including non-voting preferred shares. That vote in turn opens s. 190 dissent rights: any shareholder who objects can demand fair value as of the day before the resolution, on a strict clock — the corporation must give notice within ten days of the resolution, the dissenter must demand payment within twenty days of that notice, and the corporation must send share certificates back within thirty days of the demand. An asset sale large enough to be “substantially all” of the corporation's property can therefore create a dissenting-shareholder problem a share sale of the same business, sold privately by its owners, never triggers at all.
None of this makes one structure objectively better. It means the two sides are negotiating from genuinely different legal starting points, and a buyer who understands why the vendor is pushing for shares — and a vendor who understands why the buyer is pushing back — can trade value across the difference instead of just arguing about it. A price adjustment, an indemnity holdback, or a partial pre-closing reorganization (see using a holding company above the acquisition vehicle) can often bridge the gap more efficiently than picking a side.
An Ontario-based specialty manufacturer is owned entirely by its founder through her own name, with qualifying small business corporation shares. A strategic buyer offers $4,000,000 for the business, structured either way. Under a share sale, the founder's advisor calculates a $1,250,000 gross gain attributable to the QSBC shares is shelterable under s. 110.6(2.1) up to the $625,000 taxable-gain cap (subject to her personal annual and cumulative gains limits, and any cumulative net investment loss balance under s. 110.6(1) — both of which her accountant checks before relying on the number), with the balance of the sale price taxed as an ordinary capital gain. Under an asset sale at the same $4,000,000, the gain is realized inside the corporation with no s. 110.6 relief available at all, and a further layer of tax applies when she extracts what remains. The buyer, for its part, is willing to pay a premium for the share structure only if the representations, warranties and indemnity package genuinely narrows its inherited-liability exposure to something it can underwrite — which is exactly where the negotiation, rather than the tax analysis, actually happens.
Not to the corporation selling the assets. ITA s. 110.6 shelters a gain realized by an individual disposing of qualified small business corporation shares (or qualified farm or fishing property) — it is not a relief available to a corporation disposing of its own assets. A vendor who wants the exemption generally needs the sale structured as a disposition of shares.
The two sides can trade value instead of structure — a price adjustment that reflects the vendor's tax saving, a larger indemnity holdback, or a pre-closing reorganization that carves out specific assets or liabilities before closing. See how a holding company above the acquisition vehicle is often used to reshape exposure without forcing either side off its preferred structure.
Only where the assets being sold amount to “all or substantially all” of the corporation's property, and only outside the corporation's ordinary course of business. A partial asset sale, or a disposition genuinely in the ordinary course, does not on its own require the special resolution or open s. 190 dissent rights.
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