Is part of your long-term business strategy the sale of your business? If so, be sure to consider all three possible options and ensure that the tax consequences are considered.
The three possible options that exist are: (1) Asset Sale; (2) Share Sale; and (3) Hybrid Sale.
An asset sale consists of the sale of the business assets from the seller corporation to the buyer corporation. Buyers usually prefer this option because it limits their risk of future liability that may be associated with the predecessor corporation and enables them to have an upward cost base adjustment for assets that have appreciated over time.
A share sale consists of the sale of shares from the shareholder to a new shareholder. Sellers often prefer this option because it enables them to utilize the lifetime capital gains exemption for qualifying corporations.
A hybrid sale is more complex, but, in the right circumstances, can allow for the sale of assets that have appreciated, followed by a sale of shares. There may or may not be a subsequent reorganization on the new corporation, depending on whether the new owner(s) will retain two corporations or only one for ongoing operations.
For any business purchase or sale, there are many business-related and tax-related matters to be considered. Planning for this event for a minimum of two years prior to the actual transaction is advised. VAB PC is ready to help assist business owners in this area and welcomes new clients for which this is relevant.