Ontario Barrister and Solicitor Practice Exam

What is a key difference between an asset acquisition and a share acquisition?

1. Tax implications

2. Change in ownership

3. Disturbance to existing benefit plans

4. Legal entity continuity

The correct answer is: Legal entity continuity

A key difference between an asset acquisition and a share acquisition lies in the legal entity continuity involved in each transaction. In an asset acquisition, the buyer acquires specific assets and liabilities of a business, which means the seller can cease to exist as an operating entity unless it retains some assets or business operations. In contrast, in a share acquisition, the buyer purchases shares of the target company, leading to the continuation of that company's legal identity. The existing company remains intact, along with its contracts, licenses, and associations, after the transaction. This distinction in legal entity continuity significantly affects the structure of the transaction and has broader implications for the assumption of liabilities and the transfer of operations. For instance, in an asset acquisition, it's essential to identify and transfer specific assets and may involve negotiating new contracts. In a share acquisition, the acquisition of shares typically carries the full scope of existing rights and obligations without the need for contract renegotiation, as the company continues to exist as a legal entity under the same corporate umbrella.