This article are provided for information purposes only, and are not intended as legal advice.

Why plan for the succession of your business?

June 9th, 2009

You created your business many years ago and you are planning to be around forever.  Your kids are small or you may not have any who are interested in the business so you determine that since you are so young, you do not need to plan for your succession.  Heart disease comes with little warning and many people have died very young.  I personally have known people as young as 35 years old who died of a heart attack.  In his case, there was no succession planning.  In fact, he owned a business and had a few employees but he had no will and no second signing officer at the bank.  As a result, no one could right a cheque to pay suppliers because the bank account was frozen as soon as he died. They were unable to process the estate fast enough because the owner of the business had no will.  As a result, the business failed, all because he did not have a plan of action.


Succession for a business can mean, who is going to take over the business or what will you or your spouse do in event that you become incapacitated or die.  Do you have a power of attorney?  Power of attorneys only work if you are alive.  The minute that you die, the power of attorney is invalid.  Your will takes over.  Do you have one will or two?  There are advantages if you have two wills if you are a business owner in Canada, you can save probate taxes on death if you have your Canadian controlled  private corporation (“CCPC”) in a separate will.   You will need to get legal advice on what qualifies and what should be in the second will.  It may not be applicable to everyone.


Do you have backup cheque writers?  Is there a strong second in command that could take over the business?  If you are in a service business, do you have an arrangement with a competitor to take over your business in event that your estate/spouse needs some help?  You need to create a contingency plan.  You may have plan to defer your decision but if something happens to you in the mean time which makes you unable to make decisions, your could lose your business or have the value of the business decrease significantly.


A friend of mine was diagnosed with cancer and he knew that his time was limited.   He decided to write very extensive notes on who were the suppliers of the business, who were the customers, competitors etc.  If and when his spouse decided to sell the business, enough information was in place for the staff to buy the business and if they decided not to, he left enough information so that a broker could get to know the business that was about to be put up for sale.  He passed away almost 2 years ago and his business is still owned by his wife but he was prepared in case she changed her mind and wanted to cash out of the business.


Planning after the fact is very difficult and family members can make uniformed decisions or not well thought out decisions.  As a result, a business owner should have the following in place:  a will (or two), power of attorney in case they become incapacitated and thirdly a plan of action in event of the demise of the owner, I will call this a succession plan.  It does not matter if the business is taken over by a child, spouse, sold to an employee or third party.  Remember, there is no clear cut answer to the perfect succession plan, there is no right and wrong answer, you need to do what is best for you at the time.  it may turn out to be the wrong choice however at the time you made it, it fit all your criteria and that is what is important.

Filed under: Succession — Gary Landa @ 8:56 am

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