The two ways to sell your incorporated company are to sell your company’s shares or to sell your company’s assets. Note, that if your company is unincorporated you will only be able to sell the assets. There are several advantages and disadvantages to selling either the shares or the assets, and it is strongly recommended to obtain legal advice from a lawyer before entering into a contract. This article is intended to provide a general overview of selling a business and in no way should replace the solid legal advice tailored to your unique situation.
Should I Sell My Corporation’s Shares or Assets?
Ultimately, the decision to either sell the corporations assets or shares should take into account practical business considerations, including the income tax ramifications, your selling price (and whether it is financially better for you to sell the assets as opposed to shares), industry conventions, and whether your corporation is private or publicly traded. The legal implications of selling your shares or assets can also influence the decision making process.
Pros to Selling Your Corporation’s Shares:
- If you are concerned that the sale of your corporation’s shares will jeopardize the jobs of your employees mixed up in the sale, fear not! When selling shares in a corporation, the sale rarely affects the status of the employees who work there, unless there are provisions in the employee contract that say otherwise, or the parties agree on an alternate course of action.
- Selling your corporation’s shares can be simpler than selling the assets, and will minimize the impact of the sale on the continuing operations of the business.
- If you have a capital gains exemption either wholly or partially available, you may be eligible for a significant tax advantage in selling your business’ shares.
- There may be fewer consents required in the sale of your business’ shares. For example, if you operate out of a leased space that is crucial to the success of your business, you may not need the landlord’s consent before you transfer the business to a new owner. Of course, the consents required always depend on the original agreements signed. Contact the lawyers at Ahlstrom Wright to determine if consents are required in your sale.
Cons to Selling Your Corporation’s Shares:
- It is critically important prior to the sale of shares to check into any third party consents or other restrictions on the transfer of shares. Review of the corporate minute books is a fundamentally necessary due diligence procedure prior to purchase or sale of any shares. The lawyers at Ahlstrom Wright know exactly what to look for in order to best protect you against unauthorized sales and headaches further on down the road.
- Because the purchase of shares is generally riskier for the buyer, the purchase price may have to be reduced to reflect the amount of risk that the buyer is taking on.
Pros to Selling Your Company’s Assets:
- The sale of assets provides more certainty to the purchaser about the liabilitiesthat they are assuming, so the purchase price may be higher in an asset sale than a share sale.
- There is some flexibility in what you can choose to sell, and what you can keep. For example, if you are attached to your business’ name, you can negotiate your way out of including transfer of the business name in the sale. Just be prepared for a reduction in purchase price, especially if there is significant amount of goodwill attached to the name of your business.
- If your business operates several divisions an asset sale may be attractive in order to sell only specific divisions, instead of the entire business.
Cons to Selling Your Company’s Assets:
- If there are significant liabilities attached to your business and its assets, the buyer will be able to cherry pick out the assets that it wants, and will likely leave behind the encumbered assets for you to deal with. If you want to sell these assets as well, you should prepare yourself for a reduction in the purchase price.
- When a buyer purchases assets they do not assume any of the corporation’s liabilities, and any aggrieved parties will still have a claim against the corporation. If there are secured or unsecured creditors making claims against the corporation, you will have to be extremely careful about selling your assets, and we strongly recommend that you give the lawyers at Ahlstrom Wright a call before you sell any of your business assets.
How Will Selling My Company’s Assets or Shares Effect My Taxes?
One of the most influential factors in determining whether to proceed to sell your company’s of assets or shares will be the tax implications. Typically, a seller will want to sell their shares to take advantage of capital gains exemptions and to avoid capital cost allowance recapture. There are many other tax situations that need to be considered prior to the purchase or sale of a business, and you should consult with the lawyers at Ahlstrom Wright prior to confirming your decision.
Always Seek Legal Advice Before Selling Your Business
The lawyers at Ahlstrom Wright in Sherwood Park, Alberta can help you determine the best type of business sale for your situation.
Are you considering selling your company or corporation?
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