Restructuring, Buying, and Selling a Business: A Legal Roadmap for Entrepreneurs

Most small business owners don’t dream of corporate reorganizations. They dream of building something meaningful. Of getting their product out into the world, landing new clients, making payroll, and maybe, one day, selling the company and taking a well-earned sabbatical in Tuscany.

But here’s the reality, if your business is growing, changing, or ripe for sale, you will hit legal crossroads. Whether you’re restructuring your corporation, buying into a company, or selling shares of your own, the decisions you make today can have tax and legal consequences that follow you for years.

This article walks you through the key issues so you can make smart moves, avoid landmines, and maybe even keep a little more money in your pocket at the end of the day.

The Reorg: Why You Might Need to Restructure Your Business

Restructuring isn’t just for giant corporations with corner offices and legal teams on speed dial. Even small businesses, such as the local software shop, the family-run plumbing company, the bakery with a second location, often outgrow their original setup.

Here’s when a reorganization might make sense:

• You’re bringing in new shareholders (like your kids, your co-founder’s spouse, or an investor)

• You’re looking to separate active business from passive investments (to stay eligible for tax perks)

• You’re preparing to sell or thinking about it

• You’re incorporating a sole proprietorship to limit liability and optimize tax deferral

  
  

In Canada, most reorganizations fall under what’s called a “rollover” transaction under the Income Tax Act. Done properly, these allow you to shuffle shares or assets between entities without triggering immediate tax.

Lawyer's Tip:

You need a solid Section 85 rollover agreement, precise valuations, and ideally, a corporate minute book that hasn’t been collecting dust since 2012.

Buying or Selling Shares of a Private Company: It’s Not Like Buying a Used Car

You don’t just “hand over the keys” when it comes to a business. Whether you’re the buyer or the seller, there are layers to the deal — legal, financial, and emotional.

Let’s start with the big fork in the road: Are you selling the shares, or just the assets?

Share Sale vs. Asset Sale

• In a share sale, the buyer takes over the whole business, "lock, stock, and barrel", including employees, contracts, liabilities, and maybe even that lawsuit you forgot to mention.

• In an asset sale, the buyer cherry-picks what they want: equipment, client lists, brand names, and leaves the legal baggage behind.

  
  

Why It Matters:

Share sales often qualify for the Lifetime Capital Gains Exemption, which, as of 2025, lets you shelter up to $1.25 million of gain from tax if the shares meet certain conditions.

Sellers usually love share sales. Buyers? Not always. They don’t want to inherit skeletons in the closet, such as unpaid HST or an old CRA audit file with teeth.

That’s where due diligence comes in.

Legal Due Diligence: The Lawyer’s Flashlight in a Dimly Lit Basement

You’d never buy a house without an inspection, right? Same logic applies here. Due diligence is your lawyer’s job to peek under the hood, check for termites, and make sure the foundation isn’t built on sand.

Here’s what we dig into:

• Corporate records: Are the shares properly issued? Any unanimous shareholder agreements lurking?

• Employment matters: Are staff properly classified? Any wrongful dismissal claims waiting in the wings?

• Contracts: Do key customers have change-of-control clauses? Are supplier deals assignable?

• Litigation & tax: Any lawsuits, audits, unpaid remittances, or past sins?

  
  

A well-run company with clean books and a proper paper trail is a joy to diligence. A mess? That’s when the deal price drops, or the buyer walks.

If you’re the seller, get your house in order before listing. Think of it as staging your business for sale. That old shareholder loan on the books from 2008? Time to resolve it.

Tax Talk: The Hidden Hero of a Good Deal

Now, I’ll try not to get too excited here but tax strategy is where good deals become great deals.

The Lifetime Capital Gains Exemption (LCGE)

If you’re selling shares of a Qualified Small Business Corporation, you may be able to shelter over $1 million in gains tax-free. That’s per individual shareholder. Multiply that across a spouse or adult children (via a family trust), and suddenly you’ve got a tax plan worth talking about at dinner.

But (and it’s a big but), the company has to meet strict conditions for asset mix, holding period, and active business status.

Lawyer's Tip:

Start cleaning up the balance sheet at least two years before a sale. Too much cash or passive investment income can jeopardize the exemption.

Bonus Move: The Holding Company

Want to defer tax when you sell? Consider selling your shares to a holding company instead of taking the money personally right away. This can create room to:

• Reinvest tax-free within the corporate group

• Protect proceeds from creditors

• Do an estate freeze for succession planning

  
  

Final Thoughts: You Don’t Have to Go It Alone

Restructuring, selling, or buying a business isn’t just about paperwork; it’s about protecting what you’ve built and making sure you walk away with the best possible result. That means legal structure, tax efficiency, and rock-solid agreements.

If you’re a business owner thinking about a sale, a reorganization, or a strategic acquisition, now’s the time to get good advice. We’ll bring the legal toolkit, the tax lens, and yes, the flashlight for due diligence.

And if Tuscany’s in your future, we’ll help make sure you get there with a little more wine money in your pocket.

Need help with a business transition?

To get in touch with our team, you can contact us in three easy ways:

1. Download the ALF One-Stop Client Portal App 

2. Email us at reception@alfllp.ca 

3. Call us at 905-629-2722

We work with entrepreneurs to structure, protect, and elevate their business decisions from the first incorporation to the final sale.