SHARE SALE TRANSACTION
Pre-Acquisition - Letter of Intent - Due Diligence - Share Purchase / Sale - Asset Purchase / Sale - Merger - Equipment
Contact Neufeld Legal for business mergers and acquisitions at 403-400-4092 or Chris@NeufeldLegal.com
A business sale structured as a share sale is generally the preferred method due to its inherent simplicity and significant tax-driven financial advantages. A share sale involves the shareholder selling their equity stake in the target company to the buyer, transferring ownership of the entire corporate entity as a going concern. Legally, this is the cleanest exit strategy because all assets, licenses, customer contracts, permits, and, crucially, all liabilities (known, unknown, and contingent) remain inside the company, seamlessly transferring to the new owner with the shares. The administrative burden is drastically reduced compared to an asset sale, as there is usually no need to individually re-title thousands of assets or seek third-party consents for contracts, saving considerable time and legal expense.
The primary motivation for the seller in choosing a share sale is often the highly favorable tax treatment. In many jurisdictions, the proceeds realized from the sale of shares are taxed as capital gains at the shareholder level, which is typically a lower rate than ordinary income, and may even qualify for substantial tax exemptions (i.e., Lifetime Capital Gains Exemption). This single layer of taxation (paid by the individual shareholder) contrasts sharply with an asset sale, which often triggers "double taxation," once at the corporate level on the gain from the asset sale, and again at the shareholder level when the net proceeds are distributed. Structuring the deal as a share sale is thus optimized for maximizing the seller's net, after-tax proceeds, even if the headline purchase price is marginally lower to compensate the buyer for the inherited risk.
While a share sale offers procedural simplicity and tax efficiency, the seller's central legal challenge lies in negotiating the scope of representations and warranties and indemnification clauses within the Share Purchase Agreement. Since the buyer is inheriting the company's entire history, they will demand extensive representations and warranties concerning every aspect of the business: financial statements, tax compliance, litigation, and adherence to all applicable laws. A breach of any warranty after closing exposes the seller to an indemnification claim, effectively pulling risk back onto them. Therefore, the seller's legal strategy is focused on heavily qualifying these representations and warranties, limiting their duration (survival period), setting high monetary thresholds (baskets), and capping their overall liability to ensure they achieve the desired "clean break" from the business post-closing.
When it comes to the legal component of corporate mergers & acquisitions, that is when our law firm comes into play. Such that when your business is seeking knowledgeable and experienced legal representation in orchestrating and completing business mergers, acquisitions and divestitures, we are capable of providing such strategic legal advice and direction. Contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation for advancing your business' transactional objectives.