If you’ve been in business for a while and you’re ready to get out, or if you’re thinking ahead and planning for your succession, one of the options you might be thinking about is selling all or part of your company . Most people know that businesses can be sold, but few, even among small business owners, really know what their options are for selling a business. While Canadian law admits plenty of exceptions, as a rule you have two options: asset sale or share sale. Each has its strengths, but not every company is set up for both.

Asset Sale

In an asset sale, you’re selling off everything the company owns to the highest bidder. All of the company’s real estate, machinery, tools, vehicles, intellectual property, and other tangible assets go on sale just as if they were items on a store shelf. In this way, you can sell bits of your business off piecemeal for the best prices possible on individual items, or you can bundle them together and sell everything the company owns, including its name and phone number, as if it was a single item. If you opt for the latter, which you would if your buyer intends to take over and continue operating the business as per usual, you can probably get away with adjusting the price upward a bit to account for intangible assets, such as goodwill.

One downside of an asset sale is that you don’t get to sell your company’s debts along with its tangible and intangible assets. This can be a real problem for over-leveraged companies. If, for instance, your company has physical assets worth $100,000, and intangible assets your buyer agrees are worth $10,000, then the final sale price will be $110,000 less taxes. If your company is currently $120,000 in debt, you’re stuck paying it off at the expense of everything you just sold. Another problem with an asset sale affects sole proprietorships. In this form of organization, there’s no difference between assets your company owns and assets you personally own. Selling what is legally your own car or house can be problematic when you’re trying to report the sale as a business action at tax time.

Share Sale

Share sales correct many of the problems involved with asset sales. In this type of sale, you’re transferring ownership of shares in your corporation, rather than the property that the corporation owns. Right away, this can be a huge advantage for leveraged companies. In the example cited above, the buyer would take your debts under consideration before agreeing to a price. That debt load would probably drastically reduce the company’s asking price, but once the sale is made you’re free and clear with whatever you get paid. Even better, from a taxation standpoint, any business shares you sell for less than $750,000 may fall under Canada’s once-per-lifetime capital gains exemption.

The major downside to a share sale is, of course, that not every small business can do it. If your business is organized as a sole proprietorship, limited liability company, limited partnership, or flow-through corporation (one in which company income is taxed once as your own income), your business doesn’t have any shares to sell. If this type of sale appeals to you, it might be worth reorganizing as a public corporation before starting to look for a buyer.

If and when you’re ready to sell your business, choosing the right approach can earn you a high price and minimize your tax bill. Choose carefully according to what you want, and start planning early.