There are two ways of buying and selling an incorporated business in Ontario: assets purchase and shares purchase. Today I’d like to briefly discuss them. (An unincorporated businesses under sole proprietorship or partnership may be sold through assets purchases only.)

Assets Purchases:

Typically, buyers prefer assets purchases. In this kind of sale, the buyer buys substantial or all assets owned by the corporation. For example, if you buy a restaurant through an assets sale, you may want to buy the kitchen equipment, tables and chairs, but not necessarily the inventory in the freezer. In other words, the buyer can pick and choose which assets to purchase. Whatever is not dealt with remains the seller’s property.

Buyers of this kind generally don’t assume the debts of the seller, unless they are specifically included.

It’s important to remember that under an assets purchase agreement you only get what is specifically in the agreement. If you intend to acquire the corporation’s intellectual properties, such as trademarks and patents, you should make sure that they are specified in the transaction.

Shares Purchases:

In shares purchases the buyer buys substantial or all shares issued by the corporation. The buyer becomes the (majority) owner of the corporation and assumes the corporation’s assets and liabilities according to the percentage of the shares acquired. For example, if you buy a restaurant through a 100% share purchase, you assume all assets and liabilities of the corporation, including the debts owed to its creditors.

Sellers generally prefer shares purchases because they give the sellers a clean slate after the transaction. At the same time, because share purchases involve the acquisition of debts, there are more risks involved for the buyers.

Note: Please keep in mind that this article is provided for information and educational purposes. It does not constitute legal advice and should not be regarded as such. The law may have changed since the publication of the article.