How can Canadian business owners plan for succession?

• Ownership succession and management succession are separate decisions.
• Valuation methodology should be agreed in advance and reviewed periodically.
• Funding turns an agreement into an executable transaction.
• Family transfers raise fairness questions between active and inactive children.
• Most transitions take three to ten years to complete well.

Sale to a third party, transfer to family, sale to management or a wind-down each have different tax, timing and preparation requirements. Owners should also define their own income needs after the transition.

Obtain a defensible valuation, then draft or update the shareholders' agreement covering death, disability, retirement, departure, dispute resolution and restrictions on share transfers.

Insurance is often used to fund the death and disability triggers. Estate freezes, family trusts and the lifetime capital gains exemption may be relevant for family transfers, subject to eligibility rules that must be tested well in advance.

Transfer relationships, systems knowledge and decision authority gradually. Businesses dependent on the founder's personal relationships are worth less to a buyer and are harder to hand to a successor.

• Tax rules affecting intergenerational transfers have changed in recent years; confirm current requirements.
• Family dynamics often determine success more than the technical structure.
• Agreements that are never reviewed become inaccurate and can be disputed.

• Corporations — tax information for Canadian businesses — Canada Revenue Agency
• Income tax information for individuals — Canada Revenue Agency
• Insurance and financial basics for consumers — Financial Consumer Agency of Canada