When a business changes hands in Canada, the transaction takes one of two fundamental forms, and the distinction between them shapes everything that follows. An asset purchase involves the buyer acquiring specific property, equipment, contracts, intellectual property, inventory, and other tangible or intangible items that constitute the business's operations. A share purchase involves the buyer acquiring the ownership interests in the legal entity that holds those assets, thereby stepping into the shoes of the previous shareholders and taking over the corporation itself. This distinction is not merely technical or academic. It determines who bears responsibility for historical liabilities, how purchase price is allocated for tax purposes, whether employees are automatically transferred or must be rehired, which contracts continue in force, and what regulatory approvals may be required. For Canadian small and medium business owners, sole proprietors, and non-profit operators, understanding this fundamental choice is essential before entering any negotiation to buy or sell a business.
The legal basis for this distinction rests on fundamental principles of property law and corporate law that apply across all Canadian jurisdictions. In the common law provinces, which include British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, the transfer of assets follows centuries-old principles governing the sale of property and goods. The Sale of Goods Act in each of these provinces, though enacted separately as provincial legislation, establishes similar rules for when title to goods passes from seller to buyer and what warranties apply. In Quebec, the Civil Code of Quebec governs these transfers under its distinct civil law framework, with the provisions on the sale of property found in Book Five of the Code as of the date of authorship. While the underlying legal tradition differs, Quebec businesses face the same fundamental choice between acquiring assets and acquiring shares, and the practical consequences align closely with those in common law provinces despite the different doctrinal foundations.