Asset Sale vs. Share Sale: Choosing the Right Structure for Your Dental Practice Transaction
The deal structure you choose determines your after-tax outcome, your liability exposure, and the complexity of the transaction. This decision should be made with both legal and tax advice early in the process.
Understanding the difference between an asset sale and a share sale is one of the most important decisions in any dental practice transaction. The choice has significant implications for both the seller's tax liability and the buyer's risk exposure.
How Most Dental Practice Sales Are Structured
In Ontario, dental practices are typically sold as either an asset sale or a share sale. In an asset sale, the buyer acquires specific practice assets: equipment, leaseholds, patient records (subject to RCDSO and PHIPA rules), goodwill, and supply inventory. The professional corporation itself stays with the seller. In a share sale, the buyer purchases the shares of the dentistry professional corporation. The corporation and everything in it — assets, contracts, liabilities — transfers to the buyer. Both structures are common in dental practice transactions, and the right choice depends on the specific circumstances of the deal.
Asset Sales — Advantages and Disadvantages
For Buyers
- + Pick-and-choose assets, leaving unwanted items behind
- + Perceived lower risk — historical liabilities generally stay with the seller
- + Tax advantages through depreciation (Capital Cost Allowance)
For Sellers
- − Potentially higher tax liability compared to a share sale
- − More third-party consents required (landlord, contract assignments)
- − Administratively more complex to close
Note: Liabilities generally remain with the seller unless expressly assumed by the buyer in the purchase agreement.
Share Sales — Advantages and Disadvantages
For Sellers
- + Potential access to the Lifetime Capital Gains Exemption (LCGE) if shares qualify as QSBC shares
- + Fewer third-party assignment consents needed
- + Greater continuity for staff and patients
For Buyers
- − Assumption of corporate history, including potential historical liabilities
- − More extensive due diligence required to understand what is inside the corporation
LCGE eligibility requires the corporate structure to meet specific tests well in advance of the sale — often two or more years before closing.
Hybrid Structures
Parties sometimes negotiate hybrid transactions, such as a share sale with a pre-closing reorganization to address specific tax or risk concerns. This is where having a lawyer with in-house tax expertise becomes critical, because the structure must be coordinated between legal and tax planning. A hybrid approach can give sellers the tax benefits of a share sale while giving buyers more clarity on specific liabilities — but only if it is properly designed and documented.
Which Structure Is Right for You?
Sellers should consult legal and tax advisors early to determine whether they can maximize the LCGE and whether their corporation is structured correctly. Buyers should understand the risk profile of each structure and ensure the purchase agreement provides sufficient protection. The right answer depends on your specific circumstances, corporate history, and tax position — and should never be made based on general assumptions.
This decision is best made before going to market, not during negotiation. Early analysis gives sellers time to restructure if needed and gives buyers a clearer picture of what they are acquiring.