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Business Continuation and Succession Planning

Business Succession Planning

One day you will sell your business. It may be a voluntary ‘sale’ to a family member or someone outside the family. It may be involuntary as a result of disability or death. Wouldn’t it be smart to plan for that day so that you have a choice?

A proper plan will help ensure that your business can be transferred to the next generation or sold as a going concern.

Thinking about succession or transition planning involves asking some tough questions:

  • How can I ensure I will have a voluntary sale?

  • How do I prepare my business for sale?

  • How will I divide my estate amongst my family in a way that is fair and equitable to maintain family harmony?

  • How do I divide up the company when some kids work there and others do not?

  • How much control over the business do I want to retain when I retire?

  • Where will the money come from to fund the purchase of my business and fund my retirement?

  • What is the true value of my business and how do I properly calculate this value?

  • What succession plan will be best for my family and me? Should I have a family member continue to own and manage the business or am I better to sell the business to a key employee or a third party?

Business Continuation and Shareholder Agreements

This agreement outlines the conditions under which each shareholder may sell his/her interests should he/she become disabled, retire, die or simply choose to sell. There are three ways in which a funded agreement can be structured:


  1. Cross-purchase agreement

  2. Corporate purchase agreement

  3. Hybrid agreement

Which type of shareholder agreement do you currently have and what type is actually in your best interests?

If your agreements are not properly structured, you may waste 50% of the capital dividend account that allows for a tax-free rollover and thus creating a large and unnecessary tax to the estate.

It is also imperative to understand the rules surrounding bringing in new shareholders or exiting of existing shareholders.

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