Three things decide whether a business survives its owner: what the shareholders' agreement already requires, whether the estate can fund the tax on the shares, and who has authority to sign on the Monday after the funeral. A will alone answers none of them.
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If the company has a shareholders' agreement, read it before drafting anything else. Buy-sell and mandatory purchase clauses commonly require the estate to sell the deceased's shares to the surviving shareholders on death, at a price the agreement sets. A will cannot give away shares the estate is contractually obliged to sell. Where the price formula was written years ago, it can also be badly out of date.
Articles and by-laws under the <a href="https://www.ontario.ca/laws/statute/90b16">Business Corporations Act (Ontario)</a> frequently restrict share transfers, requiring director approval or granting rights of first refusal. Your estate trustee will usually need the certificate of appointment before the company will recognize them and let them vote the shares. If the deceased was the only director and the only officer, nobody can sign for the corporation until that appointment is made.
Where a purchase on death is required, it has to be funded. Life insurance is the usual mechanism, and insurance proceeds received by a corporation generally create a credit to its capital dividend account, which can allow a tax-free dividend to shareholders. Whether the policy should be owned personally or corporately is an accounting and tax decision, and the answer changes with the structure.
None of this applies to a sole proprietorship, which is not a separate legal entity. The assets are estate assets, the goodwill often dies with the owner, and licences, leases and supply contracts may terminate or require consent to continue. In a partnership, the partnership agreement may dissolve the firm on a partner's death unless it says otherwise. Obligations to staff under the <a href="https://www.ontario.ca/laws/statute/00e41">Employment Standards Act, 2000</a> do not disappear.
Under the <a href="https://laws-lois.justice.gc.ca/eng/acts/I-3.3/">Income Tax Act</a>, shares are treated as disposed of at fair market value immediately before death, and the gain is taxed on the final return. In a company built over thirty years, that liability can be larger than every liquid asset the estate holds. This is how succession plans fail in practice: the tax falls due before the shares can be sold or the value extracted.
The lifetime capital gains exemption on qualifying small business corporation shares can shelter a substantial gain, but the company has to meet asset and holding tests at the relevant time. Corporations carrying surplus cash or passive investments frequently fail them. Cleaning that up is planning done in advance with an accountant, not something an estate trustee can arrange after the death.
There is also a double taxation problem: the gain is taxed at death on the shares, and tax arises again when the corporation's assets are sold or its value is paid out to the beneficiaries. Two established remedies exist, a loss carryback within the estate's first taxation year and a pipeline transaction, each with strict conditions and timing. Both need a lawyer and an accountant early, because the first-year window is unforgiving.
An estate that qualifies as a graduated rate estate is taxed at graduated rates for a limited period after death rather than at the top rate, which affects how income is timed. Where the owner is still alive, an estate freeze locks today's value into fixed-value preferred shares and lets future growth accrue to children or a family trust, which caps the eventual death tax at a number you can plan around.
Continuity is an operational problem before it is a legal one. Bank accounts get frozen, payroll still runs, suppliers still deliver, and customers notice. Name in advance who has signing authority, make sure the corporate records and minute book are current and findable, and give your estate trustee express power to carry on or sell the business rather than a bare duty to preserve assets.
Incapacity deserves the same treatment as death, and is more likely. A continuing power of attorney for property lets a named person act on your shares and business affairs while you are alive but unable to act. Without one, an application to court may be needed before anyone can vote your shares, at exactly the moment the business cannot wait.
Multiple wills are standard Ontario practice for owner-managers: a primary will for assets that require a certificate of appointment, and a secondary will for private company shares and related assets that do not. Done properly this keeps the value of the shares out of the estate administration tax calculation. The drafting has to be precise, and poorly drafted allocation clauses have been litigated.
Finally, map what is entangled with you personally: guarantees you signed for leases and credit lines, real property you own personally and rent to the company, shareholder loans owing in either direction. Those follow the estate. Our published fee for wills and estates work is $563.87, taxes included, on the <a href="/pricing">pricing page</a>, and <a href="/wills-estates">wills and estates</a> explains the process, including the <a href="/estate-tax-clearance-ontario">tax clearance</a> before distribution.
Generally the agreement. It is a contract binding the estate, so if it requires the shares to be sold to the surviving shareholders on death, your estate has to sell them and your daughter receives the proceeds instead of the company. Review the agreement and the will together, and amend the agreement if the outcome is not what you want.
Only if the will gives them that power. A trustee's default duty is to preserve and convert assets, which sits badly with running a going concern. Give express authority to carry on the business, to hire management, to borrow, and to sell on stated terms, and consider naming a separate trustee for the business assets.
Shares are treated as disposed of at fair market value immediately before death, so the accrued gain is taxed on the final return. The lifetime capital gains exemption may shelter part of it if the company qualifies. The practical problem is liquidity: the tax is payable in cash while the value sits in a company nobody has bought yet.
Until an estate trustee is appointed and recognized, there is no one who can act for the corporation, sign cheques or appoint a replacement director. Banks freeze accounts. Plan for it: a continuing power of attorney for property covers incapacity, a will naming a capable trustee covers death, and keeping the minute book current shortens the gap.
Not necessarily. Where a secondary will covers the shares and no third party requires a certificate of appointment to deal with them, they can be administered without probate, keeping their value out of the estate administration tax calculation. This depends on careful drafting and on what the company's records and any lender or co-shareholder will accept.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.