When it comes to buying or selling a business in Ontario, there are two primary ways to structure the transaction: an asset purchase or a share purchase. Each structure has its advantages and disadvantages, and it is important for business owners to understand the differences between the two. In this blog post, we will explore the differences between an asset purchase and a share purchase and why it is important to use a Toronto business lawyer to assist with these transactions.
Asset Purchase vs. Share Purchase: What’s the Difference?
An asset purchase is when a buyer purchases specific assets and liabilities of a business, rather than the entire company itself. This can include things like inventory, equipment, customer lists, and intellectual property. The seller retains ownership of the legal entity that operates the business.
On the other hand, a share purchase involves buying the shares of the legal entity that operates the business. This means that the buyer is acquiring the entire company, including all assets, liabilities, and legal obligations.
Advantages and Disadvantages of an Asset Purchase
One advantage of an asset purchase is that the buyer can pick and choose which assets and liabilities they want to acquire, rather than being burdened with everything that comes with buying the entire company. This can be particularly advantageous if there are certain assets or liabilities that the buyer does not want to take on.
However, an asset purchase also has its disadvantages. For example, it can be more complicated to transfer licenses and contracts, as each individual asset may require a separate transfer agreement. Additionally, the seller may be subject to double taxation if they are selling assets that have appreciated in value.
Advantages and Disadvantages of a Share Purchase
A share purchase has the advantage of being a simpler transaction, as the buyer is acquiring the entire company, rather than individual assets. Additionally, there is no need to transfer licenses or contracts, as they are already owned by the legal entity that is being acquired.
However, a share purchase also has its disadvantages. For example, the buyer will be taking on all of the legal obligations and liabilities of the company, which can be a significant burden. Additionally, there may be hidden liabilities that the buyer is unaware of, which can lead to unexpected costs down the road.
Why Use a Toronto Business Lawyer for Asset Purchases and Share Purchases?
Whether you are buying or selling a business in Ontario, it is important to use a Toronto business lawyer to assist with the transaction. A business lawyer can help you understand the advantages and disadvantages of each structure and can guide you through the complex legal and tax implications of the transaction.
Additionally, a business lawyer can help you negotiate the terms of the transaction and can ensure that all necessary agreements and documentation are in place. This can help to protect your interests and ensure that the transaction goes smoothly.
Conclusion
Understanding the differences between an asset purchase and a share purchase is critical when buying or selling a business in Ontario. By working with a Toronto business lawyer, you can ensure that you choose the structure that is right for your needs and that the transaction is completed in a legally sound and efficient manner. If you have any questions, please contact us at info@falconlawyers.ca or 1-877-892-7778.
