Most owners plan succession as a single question — who runs the business after me. It is actually three questions, and the other two decide whether the plan survives contact with a tax bill, a will, or a family member who never worked in the business.
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From $3,388.87 taxes included
The three are: who manages the business, who owns it, and who gets paid. They do not have to be the same people. A child who runs the company day to day does not need to own all of it. Children who own shares do not need to sit on the board. Separating management from ownership from cash flow is what makes a plan work in families where the answers differ.
Once those are settled the route follows. A sale to a third party converts the business to cash and ends the family involvement cleanly, which is the right answer more often than owners expect. A management buyout keeps the business with the people who run it, often financed partly by the seller through a <a href="/vendor-take-back-lawyer-ontario">vendor take-back</a>. A transfer to children keeps ownership in the family and raises the hardest tax and fairness questions.
Fairness between children is a design problem, not a sentiment. If one child takes the business and the others do not, equalizing through the estate needs assets outside the business, insurance, or shares that carry value without control. What does not work is leaving the business to everyone equally and hoping the one who runs it will be treated properly by the ones who do not.
Timing matters more than the structure. Freezes, rollovers, valuations and buy-sell funding all take months, and they depend on the owner being alive, capable and not under time pressure. A plan started at a diagnosis or on receipt of an unsolicited offer is a plan built around someone else's deadline.
An estate freeze is the standard corporate tool. The owner exchanges common shares for fixed-value preferred shares equal to today's value, and new common shares carrying all future growth are issued to children or to a family trust. The owner's eventual tax liability is capped at today's number, future growth accrues to the next generation, and the owner can keep control through voting rights on the preferred shares.
The shareholder agreement has to be signed at the same time, not later. Once there are multiple owners you need transfer restrictions, a valuation method, buy-sell triggers on death, disability and departure, and a deadlock mechanism. The <a href="https://www.ontario.ca/laws/statute/90b16">Business Corporations Act</a> leaves a minority with the oppression remedy and litigation. Our <a href="/shareholder-agreement-lawyer-ontario">shareholder agreement page</a> sets out how those clauses are built.
Selling shares to a corporation owned by your own children is specifically policed. Section 84.1 of the <a href="https://laws-lois.justice.gc.ca/eng/acts/I-3.3/">Income Tax Act</a> can convert what looks like a capital gain into a taxable dividend on a non-arm's-length sale of shares to a corporation. Subsections 84.1(2.31) and (2.32) create exceptions for genuine immediate and gradual intergenerational business transfers, each with detailed conditions on control, involvement and timing that must be met and documented.
The lifetime capital gains exemption for qualified small business corporation shares is often the largest single saving available, and it depends on the corporation meeting asset and holding-period tests at the relevant times. Companies carrying surplus cash or investments frequently fail them, and purification takes time. Have your accountant test eligibility years before a sale, not in the month of closing.
A shareholder agreement is a contract. If it obliges your estate to sell your shares to your co-owners at a formula price, that obligation binds regardless of what your will says about who inherits them. Owners routinely sign a buy-sell agreement and then leave the same shares to a child in a will drafted years apart by a different advisor. Read the two documents side by side.
Probate cost is a smaller issue than most owners assume, but it is avoidable. Estate Administration Tax is nil on the first $50,000 of the estate and $15 per $1,000, or part, above that — a $240,000 estate pays $2,850. Ontario practice allows a primary will for assets requiring a certificate of appointment and a secondary will for private company shares that do not, keeping the value of the business out of the calculation.
Incapacity is the gap most plans leave open. If you lose capacity without a continuing power of attorney for property under the <a href="https://www.ontario.ca/laws/statute/92s30">Substitute Decisions Act, 1992</a>, nobody has clear authority to vote your shares, sign banking documents or approve a transaction, and the company can stall for months while an application is made. Name someone who can actually deal with the business, and say so in the document.
Then write it all down and review it. A succession plan is a set of documents that have to agree with each other — freeze paperwork, shareholder agreement, wills, powers of attorney, insurance ownership and the corporate minute book. We coordinate the legal side with your accountant. Our starting fee for a straightforward Ontario purchase or sale is $3,388.87, taxes included; see <a href="/pricing">pricing</a> and our <a href="/buying-selling-a-business">business sale practice</a>.
Several years before you intend to step back. An estate freeze needs a valuation and a corporate reorganization. Qualifying for the capital gains exemption can require removing surplus assets from the company well in advance. Buy-sell funding has to be arranged while the owner is still insurable. Plans started under time pressure lose most of the options that make them worth doing.
The owner exchanges their common shares for preferred shares fixed at the company's current value, and new common shares carrying future growth are issued to children or a family trust. The owner's eventual tax bill is capped at today's value, growth accrues to the next generation, and control can be retained through voting rights attached to the preferred shares.
You can, but section 84.1 of the Income Tax Act exists to stop that structure being used to extract corporate funds as a capital gain instead of a dividend. Subsections 84.1(2.31) and (2.32) provide exceptions for genuine immediate and gradual intergenerational transfers, subject to detailed conditions on control, involvement and timing. Plan it with your accountant and lawyer together, well in advance.
Not necessarily. Estate Administration Tax is nil on the first $50,000 and $15 per $1,000, or part, above that. Ontario practice permits a primary will covering assets that require a certificate of appointment and a secondary will covering private company shares that do not, so the value of the shares stays outside the calculation. Both wills must be drafted together.
Without a continuing power of attorney for property, nobody has clear authority to vote your shares or sign for the corporation, and someone has to apply to have a guardian appointed — which takes time the business may not have. A continuing power of attorney naming someone capable of dealing with the company avoids that, and should be reviewed alongside the shareholder agreement.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.