In a share purchase, the buyer acquires the shares of the target corporation and thereby inherits the entire legal entity — all assets, all contracts, all licenses, and all liabilities including ones not disclosed during due diligence. Because the corporate entity does not change, contracts, licenses, and leases remain in place without assignment (though change-of-control clauses in key contracts may trigger disclosure requirements). Share purchases are strongly preferred by sellers who qualify for the Lifetime Capital Gains Exemption (LCGE) under the Income Tax Act — which in 2024 allows Canadian resident individuals to shelter up to $1,016,602 in capital gains on the sale of qualifying small business corporation shares, completely tax-free. This creates a significant seller tax incentive for share deals. Buyers typically resist share purchases because they inherit all known and unknown liabilities. The standard mitigation is robust representations and warranties in the purchase agreement, a strong indemnification package, a holdback, and reps-and-warranties insurance on larger deals. In practice, many Canadian deals are negotiated as asset deals with a purchase price premium offered to the seller to compensate for the lost LCGE benefit.
The seller of a Surrey electrical contracting company insists on a share deal to preserve $900,000 in LCGE. The buyer agrees on the condition of an $80,000 holdback for 18 months to cover potential CRA reassessments, an indemnity cap of 100% of purchase price, and full reps-and-warranties coverage on tax matters.
Deal structure decisions have major tax and liability consequences in Canada. Ali works with your accountant and lawyer to make sure the structure that closes also protects you.