Transferring your business to the next generation

It is well known that the Canadian population is an aging one. However, did you know that a staggering 72% of business owners are expected to exit their businesses over the course of the next 10 years.^[1]  Among business owners, approximately 25% plan to sell their business to family members and 21% to transfer them to family members at no cost . These family handovers highlight a number of important issues which need to be considered well ahead of time to maximise the benefits of these handovers for all the parties involved.

Consultation and strategy

Your Lawyer can assist you in evaluating the merits and pitfalls of a generational handover. Often, the key element here is timing, not only as to when to start the process but over how much time it should occur. At PFD Lawyers, our team has the experience and is trained to survey and provide explanations to our clients with respect to all factors which must be considered in any such project and the various options at the client's disposal to conclude such transfers.

Transferring value safely: Tax planning

While professionals in the financial and fiscal sectors are crucial here, often somewhat forgotten is also a lawyer's role. As a legal professional, a lawyer can provide the client with the ability to be able to organize and structure a reorganization within the bounds of the law which will be in line with expert financial and tax planning.

It is important to note though, that from a fiscal perspective, it is much easier to plan for the best use of tax rules well ahead of time, as often tax planning requires execution over long periods of time to best benefit from the rules.

The Struggle for Order: The Contractual Safeguard

There may well be a time where the older generation needs to co-exist with the younger generation, or where the presence of the younger generation implies co-existence between various siblings. There may well be other important members of the corporation who have become shareholders or otherwise wield significant decisional power. PFD Lawyers can negotiate and structure Shareholder Agreements to properly reflect the rights, obligations and duties, as well as expectations, of the shareholders in line with the Client's instructions.

These agreements can set out any number of rules for the governance of a corporation, including stipulating people's roles and positions within the business, the rules for selling or disposing of shares, and more importantly how to manage shareholder disagreements and disputes.

Related Financing: A Review in One's Interest

A potentially overlooked component of this transition is that credit facilities are often reviewed by banks and other lenders or credit providers upon transition. PFD Lawyers can advise you as to how to properly present the project to your various lenders, as well as how to finance the transfer itself.

Changes may be afoot

While part of the reasoning of this transition to new ownership being done within the family is to maintain the same values and culture, it is undeniable that a change in ownership can and often does result in a new direction for the business. PFD Lawyers will counsel and guide the new guard through the implementation process and for many years thereafter. Such changes may include updating employment contracts, internal policies and other operational features.

Whether as guides, counselors or business experts, PFD Lawyers can assist you in all matters relating to the transfer of your business, from beginning to end.

[1] CFIB Report: Getting the transition right (November 2018)