There are the two core methods for buying or selling a business. An share purchase or an asset purchase which requires the sale of individual assets.

Asset Transaction An asset transaction involves the purchase or sale of some or all of a company’s assets, such as equipment, inventory, real property, contracts or lease agreements. An asset transaction is more complex than a share transaction because documentation is required for each asset being transferred. Third party consents may also be required where there will be a change to the control provisions in a contract, lease, licence or permit. Agreements often state that a change in control requires approval of the third party or may result in a forfeiture of the agreement.

Typically, this method is favoured by the purchaser because it allows them to be selective regarding the assets they wish to purchase. For example, a purchaser may only be interested in the inventory and equipment that the company owns and may make an offer to only purchase these desired assets. The vendor may accept the offer or they may decline and only offer to sell all of the assets as a package deal.

A purchaser may also desire an asset transaction because it involves less liability risk. Purchasers are required by law to assume liability for environmental contamination and union employees, regardless of the transaction type. However, in an asset transaction the purchaser is not required to assume liability for non-union employees unless they elect to offer them new contracts. Vendors may sometimes require the purchaser to offer similar or identical contracts to existing employees so that they can avoid wrongful dismissal claims. Additionally, the purchaser can use the purchased assets to create a new company, reducing the risk of unforeseen liabilities that may arise with the current company. Despite the reduced liability, it is vital for the purchaser to conduct the appropriate due diligence searches before completing an asset transaction.