When you’re preparing to sell your Ontario dental practice, it’s natural to focus on valuations, closing dates, and buyer fit—but one critical decision often gets overlooked: the structure of the sale itself. Whether you choose (or your accountant advises) an asset sale or a share sale, that choice doesn’t just affect your taxes or legal risk—it directly impacts your team, your reputation, and your post-sale peace of mind.
As you plan, keep three things in view: the differences between asset and share sales, how each structure affects your obligations to employees, and the legal strategies that reduce liability risk and protect your team during the transition.
Let’s begin with a quick review of the key difference between an asset sale and a share sale.
Asset vs Share Sales: What’s the Difference for Dentists?
When preparing to sell your dental practice, one of the earliest decisions you’ll make is whether to structure the sale as an asset sale or a share sale. The distinction isn’t just technical—it affects your legal responsibilities, your tax exposure, and how your employees are treated in the transaction.
Asset Sale: Selling the Practice, Not the Corporation
An asset sale involves selling the components of your practice—such as equipment, patient charts, goodwill, and leaseholds—while retaining the corporation itself. The buyer, whether an individual or a corporation, selectively purchases the assets they want.
Share Sale: Selling the Corporation
In a share sale, by contrast, you are selling the entire corporation that owns the dental practice. The buyer acquires all the issued and outstanding shares of your professional corporation, and the corporate entity — and its legal obligations – remains intact.
Understanding this distinction sets the stage for one of the most consequential decisions you’ll make as a seller. And while the benefits and drawbacks of the two sale structures are numerous, let’s focus on how each option affects your employees.
What Happens to Your Employees in an Asset Sale?
In an asset sale, because the corporation is selling its assets—not itself—your employees’ contracts are not automatically transferred to the buyer. This structure creates a legal break in employment, meaning that their employment ends on the closing date. And as the current employer, your corporation carries the legal responsibility for termination obligations under Ontario law.
Depending on the employee and their written employment agreement, termination liability can include either:
- Employment Standards Act (ESA) minimum entitlements: Notice or pay in lieu of notice (up to 8 weeks) and potentially severance pay for eligible employees, depending on tenure and payroll size.
- Common law reasonable notice: This is often significantly greater than ESA minimums (usually up to a soft ceiling of 24 months), and is based on factors such as age, role, length of service and availability of similar employment.
If the buyer wants to retain your team, they must offer new contracts under their own corporate entity. If the buyer hires anyone on new terms that don’t explicitly recognize past service, those employees may still pursue you for common law damages unless a valid “novation” of the contract occurred—meaning they knowingly agreed to release you from liability, which is rare and difficult to prove.
Example:
Dr. Smiles sells their clinic in an asset sale. The buyer decides not to rehire the hygienists, assuming Dr. Smiles will “deal with it.” But Dr. Smiles hadn’t budgeted for termination costs. One hygienist with 14 years of service sues for wrongful dismissal. And because she didn’t have an updated termination clause in her employment agreement, the employee won 14 months’ common law notice—costing Dr. Smiles around $120,000 (after vacation pay and employer CPP and EI contributions). Not to mention, they would also have to pay a portion of the hygienist’s legal fees and their own legal fees.
In an asset sale, your employees don’t automatically follow the practice—they stay with your corporation unless the buyer proactively hires them. This legal technicality has not only human but also financial consequences for sellers.
What Happens to Your Team in a Share Sale?
In a share sale, ownership of your professional corporation changes hands, but the corporation itself remains legally intact. Due to this continuity, a share sale provides the smoothest path for transitioning a dental team without disruption. There is no legal termination of employment, no requirement to rehire, and no trigger for severance under the ESA or common law.
From the employee’s perspective, it’s business as usual. They remain employed by the same corporation, under the same contracts, with their paycheque, benefits, and title unchanged. Aside from meeting the new owner, they may not even notice the legal shift.
However, the very continuity that protects your team also means the buyer inherits any other employment-related liabilities. This can include accrued vacation, unresolved HR complaints, or exposure to wrongful dismissal claims. As a result, buyers often conduct thorough due diligence on the corporation’s employment history and may request specific indemnities or warranties in the Purchase and Sale Agreement.
Example:
Dr. Tooth sells the shares of his professional corporation to a buyer who wants a “turn-key” practice. All employees stay on, and no employment agreements are renegotiated. A year later, a dental assistant sues for constructive dismissal over a long-standing overtime dispute that began during Dr. Tooth’s ownership. The buyer demands compensation from Dr. Tooth to cover the dispute costs.
If you haven’t properly reviewed and updated your employment contracts, a buyer may foresee significant termination packages. This risk often leads buyers to demand a lower purchase price or walk away from the deal entirely. If not handled thoughtfully, employee termination costs after the sale can create friction or risk for both the buyer and the seller.
Legal Strategies to Protect Yourself and Your Team During the Sale
Whether you’re planning an asset or share sale, the legal treatment of your employees isn’t just a background detail—it’s a central piece of the transition puzzle. Missteps can lead to costly claims, reputational harm, or even delays in the closing process.
Use the Purchase and Sale Agreement to Protect Yourself
Wrongful dismissal claims and ‘severance’ disputes are two of the most common post-sale risks dentists face, especially if employees are terminated without proper notice or if their transition to the buyer isn’t handled carefully. A properly drafted Purchase and Sale Agreement can be a powerful tool for protecting yourself after closing.
Even in a share sale, where employment continues, the Purchase and Sale Agreement should address known liabilities, accrued entitlements, and any ongoing disputes that could expose you to post-closing claims. To reduce your risk exposure:
- Clarify who is responsible for termination obligations. This is especially important if your employees won’t be continuing with the buyer.
- Ensure employment contracts are enforceable. Outdated or ambiguous terms can backfire. Pay particular attention to termination clauses that may no longer hold up under current Ontario case law.
- If employees are being terminated, ensure proper notice or pay in lieu is provided to satisfy ESA and/or common law obligations.
- If the buyer is hiring your team, address whether past service will be recognized and reflect this in both the Letter of Intent and the Purchase and Sale Agreement to avoid misunderstandings.
- Include explicit indemnification provisions to protect against claims tied to pre-closing events (e.g., outstanding vacation pay, unresolved HR issues or unpaid bonuses).
A legally sound transition not only protects your financial interests but also contributes to a smoother experience for your team and the buyer.
Talk to Your Team The Right Way
A common mistake sellers make is discussing the sale with the wrong people at the wrong time. Communication isn’t just about legal compliance; poor timing or vague messaging can lead to confusion, fear, and even resignations that can hurt the value of your practice.
For practical advice on how to break the news to your team in a respectful and strategic manner, read: “Your Dental Practice is for Sale: Here’s How to Share the News with Your Team“. It outlines how to time the announcement, who should be present, and how to frame the message in a way that reassures rather than rattles.
A well-structured communication plan can go a long way toward retaining key team members, reducing stress, and maintaining the goodwill of your practice.
If the Buyer Isn’t Keeping Your Team, What Now?
Lastly, sellers must think beyond contracts and claims. If you know the buyer does not intend to retain some or all of your team, you have a decision to make: proceed with the sale anyway or seek alternative buyers. While there’s no legal obligation to ensure your employees are re-employed, there’s an ethical dimension worth contemplating.
In these situations, consider:
- Giving some advance warning to affected employees
- Providing enhanced severance where financially feasible
- Recommending your team members to other dental offices or recruiters
You’ve built your practice on relationships. Protecting those relationships, even at the end, speaks volumes about your values—and preserves your legacy.
Bottom Line
Choosing between an asset sale and a share sale is more than a financial or legal decision—it’s a choice that deeply affects your team, your professional reputation, and your post-sale peace of mind.
Selling your dental practice isn’t just a business transaction—it’s a transition for everyone who helped build it. The best outcomes happen when legal compliance, team care, and future planning are all aligned.
Let’s make it smooth, safe, and legally sound.
Book a free consultation call with a DMC dental lawyer today to get personalized guidance for your sale.
