Two ways to buy business
Bill Hubbard - Feb 27, 2020 - Columnists

Photo: Justin Lim, Unsplash

A share sale and an asset sale are typically the two different ways you can buy a business. In a share sale you actually buy the company that owns the assets needed to run the business. In an asset sale you simply buy the assets that are needed to run the business and leave the actual business or company with the seller.

Typically, a share sale benefits the seller and an asset sale benefits the buyer.

When a buyer purchases the shares of a company there are some advantages to the seller, but there are also some liabilities and tax disadvantages to the buyer. For instance, if a year prior to the sale of a company a customer slipped and broke their ankle, that customer could come back and sue the company after the company is sold to the buyer. The buyer likely would have no way of knowing that he is buying that liability when he purchases the company from the seller.

If the buyer had purchased only the assets, the customer could not come back and sue the buyer. He or she could only sue the company which was still owned by the seller.

Very often the price of a share sale and the price of an asset sale are different because of the tax advantages and disadvantages awarded to the two parties. The other important point is that a share sale is a much more complicated sale to put together. That is why generally Realtors draw up a document that requires lawyers to do the final share sale agreement between the parties. However, an asset sale can usually be done by a good commercial Realtor.

It is advisable, regardless of who writes the deal up, to have a lawyer look over the contract.

 Bill Hubbard is a real estate broker and the owner and broker of a four-office real estate firm in the Okanagan Shuswap. He has been in real estate for 31 years and has been an owner and broker in Vernon for 20 years.


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