Business succession - Planning ahead to maximize proceeds and minimize tax.


Business succession

Planning ahead to maximize proceeds and minimize tax.

Whether you plan to sell your business or transition it to the next generation there will be decisions to make and planning to be completed. 

To maximize proceeds and/or minimize tax, planning must begin well in advance of the anticipated transition date. Putting in place a formal succession plan will ensure stability for employees and customers through the transition period as well as ensure a stable and predictable retirement income stream for the owner.

To sell or succeed

Often business owners have a desire to pass the family business on to the next generation as part of a family legacy. Consideration must be given to the ability of the next generation to be successful in the business as well as their desire to take over the business. Both must be present if the business is to continue as a profitable entity. It is important to ensure all family members are included in the discussion to maintain family harmony and that serious thought is put into the skills the successor will require. Discuss your plans early and consider how children who will not participate in the business will be equalized in other ways. 

If a sale of the business is planned, you will need to determine the fair market value of the business and who the potential purchaser might be. There may be interest from internal purchasers, such as existing management or external purchasers, which could include  a competitor. Will these purchasers be willing to buy the shares of the corporation or will they negotiate a better price for the assets instead? 

Typically buyers will prefer an asset deal over a share purchase for the simple reason that they are purchasing the operational portion of the business without acquiring the corporate history of the company and the liabilities that go along with it. Vendors, on the other hand, typically prefer to sell shares in order to access the lifetime Capital Gain Exemption which can shelter approximately $835,000  of capital gains from taxation. In the end, a combination of these strategies, known as a hybrid transaction, may be the solution to suit the needs of both parties. 

Ensuring tax efficiency and retirement funding

How much money is required to retire? Are there other savings or income streams outside the corporation? These are questions you should be asking yourself as you plan to move on from your business. It is important to have a good understanding of the income stream you will need to meet your retirement goals and where these funds will come from.


Interested in reading the full article?

Contact us for our Tax and Estate Planning education article: Business Succession. We also have articles that take a deeper dive into Selling a Business and Capitial Gains Exemptions.


Benefits of planning for business succession

  • Ensure a smooth transition for family and stakeholders 
  • Fortify the value of your business
  • Prepare for unexpected events like an illness or accident
  • Protect the legacy of your business



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