Asset Sale or Share Sale? Structuring a Restaurant Deal in BC
One of the first questions in any restaurant sale is what is actually being sold. In BC, there are two main structures: an asset sale or a share sale. The choice affects taxes, liability, the lease, licences and ultimately what each side walks away with.
What is an asset sale?
The buyer purchases specific assets from the seller’s company: equipment, furniture, inventory, the trade name, recipes, goodwill and usually the lease (by assignment). The seller’s company stays with the seller, along with its history and liabilities.
What is a share sale?
The buyer purchases the shares of the corporation that owns the restaurant. The company itself doesn’t change. Its contracts, licences, bank accounts, employees and its past all come with it.
Side-by-side
Factor | Asset sale | Share sale |
|---|
Who usually prefers it | Buyer | Seller |
Liabilities | Mostly stay with seller | Transfer to buyer |
Buyer’s tax position | Can depreciate assets at new values | Inherits old tax values |
Seller’s tax position | Possible recapture; proceeds taxed in the company | May qualify for the lifetime capital gains exemption |
PST / GST | May apply to certain assets | Generally not on shares |
Lease and licences | Must be assigned or reissued | Usually stay in place, subject to change-of-control clauses |
Due diligence | Focused on assets and operations | Deeper: full corporate, tax and legal history |
Why buyers lean toward asset deals
A buyer wants a clean start. With an asset purchase, they aren’t on the hook for the seller’s old tax bills, employee claims or supplier disputes. They also get to write off equipment based on what they paid.
Why sellers lean toward share deals
For a qualifying small business corporation, a share sale may let the owner use the lifetime capital gains exemption, which can save a significant amount of tax. It’s also simpler to transfer an entity with its lease and licences intact.
Finding middle ground
The structure is often a negotiation. A seller who needs a share sale may accept a slightly lower price, or offer stronger indemnities and a holdback to protect the buyer. A buyer who insists on assets may pay a little more to offset the seller’s tax cost.
Get advice early
Structure should be decided before the offer is written, not after. Bring in an accountant and a lawyer who understand small business transactions. Rules change, and every corporation’s situation is different.
The bottom line
The right structure can be worth more than a few points on price. Tom Balog works with sellers and buyers to structure restaurant deals that close.
This article is general information, not legal or tax advice. Speak with a qualified professional about your situation.
