Glenda is considering the purchase of a family-run catering business, called Palace Catering Ltd. The corporation specializes in the planning, preparation, and hosting of professional dinners, parties, and activities. Although Glenda is qualified for operating and managing the business, there is a high probability that profits from operating this business will not begin for a couple of years. She is wondering if she should purchase the net assets from the corporation or 100% of the shares presently held by the vendor family. The corporation had a proven record of profits until two years ago, when the death of the chef, along with the retirement of two employees resulted in a loss of business. The accumulated non-capital loss carryforward is $84,000.

Glenda’s plan for the new business is to carry on catering. She is also toying with the idea of producing dessert cakes for sale to hotels and restaurants. Over the next two years she expects she could make profits on the sale of cakes of $4,000 and then $18,000. Thereafter, she estimates profit from the cakes of about $25,000 annually.

Glenda plans to use an 6% small business loan to purchase the business. If there are any further operating losses she will use the proceeds from her bond investment to finance the business over the next few years. From January 1 to August 31 of the current year, Glenda earned $38,000 as senior hostess at the Professional Club in Saskatoon, and $12,000 in interest income.

Glenda would like your advice on what should be considered in deciding on a share purchase or an asset purchase.