Before buying or selling a Calgary business, both sides need to answer a basic question: is the buyer purchasing shares of the company, or particular assets used by the business?

That choice can affect what the buyer acquires, which obligations stay with the operating company, whether contracts require consent and how the transaction closes. There is no universally better structure. The right answer depends on the business, the parties’ goals and coordinated legal and tax advice.

What is a share sale?

In a share sale, the buyer purchases shares from the existing shareholder or shareholders. The corporation generally remains the owner of its assets and the party to its contracts and obligations. This may make some aspects of operational continuity easier, but the buyer is acquiring an interest in a corporation with an existing history.

For that reason, a share buyer should investigate matters such as corporate records, borrowing, disputes, taxes, employment obligations and key contracts. A share sale does not guarantee that every contract or permit will continue unaffected: some arrangements address changes in ownership or control.

What is an asset sale?

In an asset sale, the buyer purchases identified assets from the person or company that owns them. Assets might include equipment, inventory, intellectual property, domains, customer-related assets and goodwill. The agreement should state what is included, what is excluded and which liabilities the buyer agrees to assume.

An asset purchase can give the parties greater flexibility to define the transaction. It does not, however, guarantee that the buyer avoids every potential liability. Contracts, permits and assets may require separate transfers, consents or filings, and some obligations may arise under applicable law regardless of how the agreement allocates risk between the parties.

Why might a seller prefer a share sale or an asset sale?

A seller’s preference may be influenced by tax treatment, who owns the shares or assets, what remains in the corporation after closing and how liabilities will be addressed. Those considerations differ from deal to deal. Sellers should obtain tax advice before committing to a structure or a price that assumes a particular tax result.

A buyer may favour an asset transaction to identify precisely what it wants to acquire. On the other hand, multiple assignments, title transfers and replacement licences can make an asset sale more complex. A share transaction may offer continuity in some respects, but it calls for close scrutiny of the corporation’s existing obligations.

How do contracts and consents differ?

In an asset sale, the buyer may need important customer, supplier, software or lease agreements assigned or replaced. The parties should check whether consent is required and who will obtain it.

In a share sale, the corporation usually remains the contracting party, but change-of-control wording may still require consent or give the other party rights. Review each material agreement rather than assuming one transaction structure eliminates consent requirements.

What happens to employees?

Employment consequences depend on the structure and the facts. In a share sale, the employing corporation generally remains the same legal entity. In an asset sale, the parties need a plan for which workers the buyer will offer employment to and how employment-related obligations will be addressed.

Employment standards and other legal obligations may apply regardless of what the purchase agreement says between buyer and seller. Have employment counsel review the workforce and proposed transition before the parties settle closing terms.

What about licences, financing and security?

Check whether operating licences and permits remain valid after a change of control or require new applications when assets change hands. Existing lenders may also have consent or repayment rights.

For Alberta personal property, relevant Personal Property Registry searches can help identify registered interests. The Alberta Personal Property Security Act forms part of the framework for security interests and registrations. The purchase agreement and closing plan should address required payouts, releases and any buyer financing. A registry search must be interpreted; it does not itself establish the balance owing.

Does the headline purchase price tell the whole story?

No. Two offers for the same amount can have different economic results. The parties should also address which assets are excluded, which liabilities are assumed, the treatment of inventory and working capital, debt, adjustments at closing and any holdback.

Representations and warranties, indemnities, transition assistance and appropriately drafted restrictions on post-sale competition or solicitation may also affect the value and risk of a transaction. Their scope should fit the deal and applicable law.

When should buyers and sellers choose a structure?

Discuss share and asset options with legal and tax advisers before fixing the deal terms. A letter of intent can record the proposed structure, but it should not lock the parties into untested assumptions about taxes, consents, employees or financing.

Evergreen Solicitors assists Calgary and Alberta business buyers and sellers with acquisition structuring, due diligence, purchase agreements and transaction closings. Contact the firm early to discuss the proposed transaction alongside your accounting and tax advisers.

This article provides general information, not legal or tax advice. The consequences of a share or asset transaction depend on the facts, documents and applicable law.