Asset Sale vs Share Sale: Which Structure Is Right for You?

The core difference

In an **asset sale**, the buyer creates a new entity and buys specific assets and liabilities from the seller's company. The seller's entity continues to exist (and bears any liabilities not transferred). In a **share sale**, the buyer buys the equity of the seller's existing entity — everything inside it (assets, liabilities, contracts, history) comes along.

Why buyers prefer asset sales

Liability protection (you don't inherit unknown debts, litigation, tax issues). Cherry-picking — you choose which assets and liabilities to take. Stepped-up tax basis on acquired assets (in the U.S., this allows higher depreciation deductions, lowering taxes for years post-close).

Why sellers prefer share sales

Tax treatment — capital gains (typically lower rate) rather than ordinary income on certain asset categories. Cleaner exit (no surviving entity with stranded liabilities). One transfer, not dozens.

The U.S. tax dimension (talk to your CPA)

In an asset sale, allocation matters: depreciable assets and inventory generate ordinary income to the seller; goodwill is capital gain. Buyers prefer high goodwill allocation; sellers prefer high inventory/depreciable allocation. The IRS Form 8594 captures the agreed allocation — both parties must file consistently.

Canadian considerations

In Canada, the Lifetime Capital Gains Exemption (LCGE) makes share sales of Qualified Small Business Corporation (QSBC) shares particularly attractive to sellers — up to ~$1M of capital gains can be exempt. This makes Canadian SMB sellers materially prefer share deals — buyers usually pay a premium to compensate (5–10%).

UAE considerations

Asset vs share matters for the trade-licence transfer mechanism (mainland DED vs free zone). Free-zone transfers often happen at the share level for licensing simplicity; mainland deals are more frequently structured as asset transfers. Visa/Emirates ID continuity for employees is a key practical consideration.

What contracts come along

**Share sale:** all contracts continue (the legal entity is unchanged). But many contracts have "change of control" clauses that trigger renewals or terminations — get a contract assignment review in diligence. **Asset sale:** contracts must be individually assigned, and most require counterparty consent. For a deal with 50+ customer contracts, getting consents can take weeks.

Liability — the big one

In an asset sale, the buyer typically inherits only the liabilities specifically listed. But certain liabilities are nearly impossible to escape: product liability for previously-sold goods, environmental liability, certain employee obligations (especially in Canada/UAE), and tax liabilities (in some jurisdictions). Your purchase agreement's "Assumed Liabilities" and "Excluded Liabilities" sections deserve careful drafting.

How to decide

Default to asset sale if you're the buyer and the seller's history isn't squeaky-clean. Default to share sale if you're a Canadian seller eligible for LCGE. Negotiate around the difference — typically a 5–10% price gap separates the two structures.