Shane Plastics Ltd. is a Canadian-controlled private corporation. All of its outstanding common shares are owned by KS Holdings Ltd., a company owned by Karl Shane. KS Holdings also owns several real estate investments. Shane wants to sell the plastics business to four senior employees, one of whom is his son. Shane realizes that none of the employees has substantial financial resources and that they may be able to contribute only 25% of the purchase price. Even to obtain this amount, the four employees would likely have to take out personal loans.
A financial institution is prepared to finance the balance of the purchase price provided that Shane agrees to be the guarantor of the loan. Shane may be prepared to do this, even though it would leave the business with a severe debt load and no flexibility should the business have temporary problems.
The employees have asked Shane to finance the purchase by permitting a flexible, eight-year payment schedule. Shane is not averse to this offer, provided that he can continue to have some say in the major decisions of the business until most of the payments have been made.
The most recent balance sheet of Shane Plastics is summarized in the following table:

The following additional information is available:
1. The undepreciated capital cost of the depreciable property is as follows:
Building€¦€¦€¦€¦€¦€¦€¦€¦ $490,000
Equipment€¦€¦€¦€¦€¦€¦€¦€¦ 100,000
2. The asset values are as follows:
Current assets €¦€¦€¦€¦€¦€¦€¦€¦..
$500,000
Land €¦€¦€¦€¦€¦€¦€¦€¦..
100,000
Building €¦€¦€¦€¦€¦€¦€¦€¦..
720,000
Equipment €¦€¦€¦€¦€¦€¦€¦€¦..
300,000
Marketable securities €¦€¦€¦€¦€¦€¦€¦€¦..
100,000
In addition, the value of goodwill has been estimated at $400,000.
3. KS Holdings acquired the shares of Shane Plastics a number of years ago at a cost of $200,000. Recently, a competitor had offered to purchase the shares of Shane Plastics for $1,200,000; Shane had refused the offer because he wanted to sell to the employees.
Shane is prepared to accept the deferred payment schedule suggested by the employees but has concerns about the immediate tax liability associated with the sale. Shane is 50 years old and intends to maintain KS Holdings to hold his investment portfolio. He will also continue to be employed by Shane Plastics after the business has been acquired by the employees.
Required:
1. Assuming that either an asset sale by Shane Plastics or a share sale by KS Holdings will be made at fair market values, with deferred payments over eight years, which method should Shane prefer? You may assume a corporate tax rate of 25% on business income.
2. Suggest and briefly discuss several alternative methods that will defer the tax liabilities on the sale and also assist the purchasers in making the acquisition, considering their limited resources. Be as specific as possible, given the information provided.

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Curent assets (cash, receivables, inventory) S500,000 an 50,000 Building S600,000 350,000 950,000 (400,000 Equipment 550,000 100,000 $1.200.000 S 300,000 400,000 Accumulated amortization Marketable securities (bonds) Current liabilities Mortgage on land and building Shareholders' equity: Share capital Retained eamings S 10,000 490.000 500.000 S1.200.000