Transitioning the ownership of a business often is the culmination of a lifetime’s work, and the owner’s biggest opportunity to benefit from the time and effort invested in it. Whether you’re passing your business on to the next generation or selling it, the sale or transfer should be structured to maximize its value.
This is best done before there is an offer on the table. Tax issues can have a significant impact on the sale, so it’s important to understand any issues that might crop up on either side of the bargaining table. This is the time to bring in professional advice.
This is the second column in a series on some of the common issues that crop up in finalizing the sale of a business. Last month’s column looked at the two general approaches for selling an incorporated business — where the corporation sells the assets of the business or the owner sells shares of the corporation — and the tax implications of each.
In choosing a sale structure it is important to know whether or not you are able to access the capital gains exemption. If a sale is imminent, you may find your business has not met certain requirements for the past two years, including that at least 50% of its assets had been used principally in an active business in Canada.
Where the capital gains exemption is not available and the business has significant goodwill, most business owners and potential purchasers prefer an asset sale, assuming there are no constraints to selling assets. If the capital gains exemption is available, you may be able to access this benefit under a properly structured asset sale. It’s important you fully understand the tax implications of an asset sale to you and your purchaser before entering into serious negotiations, it could even increase its price tag.
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