Family businesses are the cornerstone of the Canadian economy. Canada’s family businesses provide jobs, both full-time and part-time, to over 6 million Canadians and account for annual sales of over $1.3 trillion.
Family businesses have a leader and that leader is usually the patriarch or matriarch of the family, or both. Around Brooks, a very common form of family business is the family farm, with a parent as the business leader. Statistics show that within 15 years 80% of the leaders of family businesses will retire. That leads to the question: How does one transfer the family business from one generation to the next?
Family business succession planning is not just for dealing with the retirement of the leaders, it also is to deal with an unexpected death or disability. In all 3 cases, it is imperative, not just to the future of the family business, but also for the future of the family unit and family relations, to have a succession plan in place.
It is common for the family business to be run through a corporation. Often, the majority of the shares of the corporation, and therefore the wealth and control of the corporation, are owned by the leaders. There are many ways to transfer these shares to the next generation. However, if the transfer is done without planning, for example, if it is necessitated by virtue of a death, there can be devastating tax consequences for the family business. Putting in place a family business succession plan can minimize such tax consequences.
Many readers will likely be able to relate to the family business where the children invest their time, lives and careers in the business, and yet have no ownership in that business and no decision-making ability, as the business is entirely controlled by their parents. In many family businesses, this type of situation is no longer acceptable to the children. The children are no longer willing to wait for their inheritance, when they are investing so much of themselves into the family business and contributing to the growth of that business. Situations like this can lead to serious rifts within families.
Business may be a matter for the head, but families are a matter for the heart. In family business succession planning, a common goal is to deal with both the head and the heart. The succession plan is for ensuring that the wealth passes from one generation to the next while maintaining close family relations.
Family business succession planning is not an event. It is a process to assist in achieving the goals I have outlined. A succession plan can be done through a Will or it can be done through your lifetime. To do it through your Will can create the very problems you want to avoid. A succession plan is for the orderly and organized transfer of the family business to the next generation who are interested in (and who likely are involved in) the business. It is done with keeping in mind those children not involved or interested in the business. A big advantage to creating the succession plan and implementing it during the lifetime of the leaders, is to involve all members of the family and to get their input.
To create a family business succession plan, you need to involve your lawyer and your accountant. You may also need to involve a business evaluator, a banker, a business advisor and an investment adviser.
If you have any questions regarding a succession plan for your family business, please contact us at email@example.com.