Asset sale or share sale? Define the structure before comparing proceeds

Explore the questions behind price, liabilities, inventory, tax and approvals without assuming one structure is always better.

Educational owner resource. Read the cited sources and obtain advice for your circumstances.

Identify what the buyer will acquire

An asset purchase specifies the business assets being bought. A share purchase transfers ownership interests in the corporation, with the company continuing to hold its assets and obligations. BDC’s acquisition guidance highlights that buying shares also means exposure to the business’s liabilities, including matters not recorded in the accounts. Business Development Bank of Canada The agreement and applicable law determine the actual allocation of risk.

Begin with a list of what is intended to transfer and what will remain: inventory, receivables, equipment, goodwill, contracts, premises, debt, cash and other obligations. Then ask your advisors which structure fits the business, ownership rules, tax circumstances and buyer’s requirements. Do not decide solely by comparing two headline prices.

State the inventory and working-capital convention

One proposed asset deal may quote operating assets plus inventory counted separately at closing. Another offer may use an enterprise-value convention with an agreed level of working capital. These terms require definitions, eligible assets and liabilities, measurement dates, accounting policies and a dispute mechanism. Inventory counted separately must not also be charged through the working-capital calculation.

Ask how obsolete, expired or otherwise ineligible inventory is treated, who conducts the count and how the parties resolve disagreement. Clarify receivables and payables. A higher price that includes more assets is not directly comparable with a lower figure that excludes them. Put the conventions beside the numbers so every participant uses the same basis.

Separate purchase price from the owner’s cash

Record closing cash, deferred payments, debt settlement, fees, tax and any retained assets. A corporate seller’s receipt is not automatically a shareholder’s personal after-tax proceeds. Vendor financing leaves money at risk with the buyer; a holdback has release conditions; an earn-out depends on its negotiated measurement and protections.

CRA guidance notes that a sale of a business can involve separate asset allocations and, if conditions are met, a joint GST/HST election. The election is not automatic and does not apply to every asset sale. Canada Revenue Agency Tax consequences and any available relief depend on facts and current law. Ask an accountant or tax advisor to compare structures without assuming eligibility or using an online estimate as a tax result.

Keep approvals and implementation in the comparison

A selected structure can affect contracts, ownership documentation, accounts, employee arrangements and regulator or payer procedures. Confirm those dependencies before assuming that either route preserves everything unchanged. Province-specific pharmacy requirements need attention; the Ontario purchasing route described by OCP is not a national rule. Ontario College of Pharmacists

Ask for a side-by-side analysis of what transfers, liabilities, consents, immediate cash, deferred risk and likely costs. Then have counsel and your accountant identify conditions and unresolved assumptions. Our fictional LOI uses a simplified inventory-separate asset scenario to teach the concepts, not to recommend that structure. A confidential planning discussion can help you organize the questions needed for advice suited to your pharmacy.

Continue reading

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Sources and context

Purchasing a Community Pharmacy
Ontario-specific process. Guidance states at least 45 days for a complete accreditation application, not a promised approval time. Corporate amendments/share changes may require a different route.

Selling a business
General tax-registration and GST/HST guidance. Conditional election eligibility; no automatic exemption or individualized tax result.

The steps you need to take before buying a business
Generic assets, liabilities and share-purchase concepts; deal-specific allocation of liability and tax require advisors.

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