PharmaSoldGuides · Sellers & buyers
Asset sale or share sale: which is better when selling a pharmacy?
The deal structure can change what you keep by tens of thousands of dollars. Here's how each works, in plain terms.
Most pharmacies in Canada are owned through a corporation. When you sell, there are two ways to do it, and the choice can change how much money ends up in your pocket by tens or even hundreds of thousands of dollars.
The two options in plain terms
- Share sale: you sell the shares of the corporation that owns the pharmacy. The buyer takes over the whole company: its assets, its contracts and its history.
- Asset sale: your corporation sells the pharmacy's assets (goodwill, patient files, equipment, inventory) to the buyer's corporation. You keep the old company, and whatever comes with it.
| Share sale | Asset sale | |
|---|---|---|
| What's sold | The company itself | The pharmacy's assets |
| Who usually prefers it | Sellers | Buyers |
| Past liabilities | Go with the company to the buyer | Stay with the seller's company |
| Contracts and agreements | Usually stay in place | Usually need to be transferred or redone |
| Main tax effect | May qualify for the lifetime capital gains exemption | Buyer can write off the purchase over time |
Why sellers usually want a share sale
The biggest reason is the lifetime capital gains exemption. When you sell shares of a qualifying small business corporation, part or all of your gain can be tax-free, up to a lifetime limit that was raised to $1.25 million in 2024. If several family members own shares, each may be able to use their own exemption.
There are conditions. Generally, almost all of the company's assets must be used in an active business when you sell, and there are holding-period tests over the previous two years. Extra cash or investments sitting in the company can disqualify you, so owners often need to "purify" the corporation before a sale. This takes planning, which is why you want your accountant involved early. We explain the rules in detail in The lifetime capital gains exemption.
With an asset sale, the money goes into your corporation first. Getting it out to you personally usually means a second layer of tax, so the same price can leave you with noticeably less.
Why buyers usually want an asset sale
Liability. In a share sale, the buyer inherits everything the company did before closing. For a pharmacy, the biggest worry is an audit. If ODB or a private insurer later recovers money for claims made before the sale, a share buyer's company is on the hook. With an asset purchase, those past problems stay with the seller.
Taxes. In an asset purchase, the buyer can depreciate what they paid for goodwill and equipment, which lowers their taxes for years. In a share purchase, they generally can't.
Things that change in an asset sale
Because the pharmacy is moving to a new company, more has to be redone:
- Pharmacy accreditation with the Ontario College of Pharmacists for the new owner
- ODB and private insurer billing agreements
- The lease, which usually needs the landlord's consent to assign
- Banner, supplier and service contracts
- Staff, who are typically offered employment by the new owner
HST can also apply to an asset sale. In many cases, when a buyer acquires substantially all of a business's assets, both sides can file an election so HST isn't charged on the sale. Ask your accountant whether it applies.
Meeting in the middle
Since sellers and buyers want opposite things, many deals find a compromise:
- A share sale at a slightly lower price, so the seller keeps the tax benefit and the buyer is paid for the extra risk.
- Strong indemnities, where the seller promises to cover pre-closing problems such as audit recoveries.
- A holdback, where part of the price is held for a period in case something surfaces after closing.
- A clean-up before closing, where the seller removes non-pharmacy assets from the company first.
Do this before you sign anything. The structure of the deal is usually set in the letter of intent. Once you've agreed to an asset sale, it's hard to go back. Get tax advice before the LOI, not after.
So which is better?
For many owners, a share sale leaves more money after tax. But it depends on your company, your family's shareholdings, your audit history and what buyers will accept. The right answer is the one that maximizes what you keep after tax, at a risk level the buyer can live with.
We help both sellers and buyers work through this choice in plain terms, then bring in your accountant and lawyer to confirm the details. If you're weighing a sale, ask us about it as part of your free valuation.
This guide is general information, not tax or legal advice. Tax rules change, and your situation depends on your corporation's structure and history. Speak with your accountant and lawyer before making decisions.