Estate, Tax & Succession Planning
With the rise of social media marketing and the vast internet resources available to the average individual, the family business is making a strong come back. While these resources make the early stages easier, the small business owner is often left with an important question: how do I transfer my business to my children?
The answer to this question is not an easy one and the process will be different for everyone depending on the structure of your business, your business finances, your personal finances and when you intend the transfer to take place.
Factors by Business Structure
If you are a sole-proprietor, ownership of your business cannot simply be transferred. In order for your business to be transferred to your children, you will need to transfer all of the assets of the business, all relevant registrations, and your children will need to ensure that they are properly registered.
A business operating as a partnership will be subject to the same rules of transfer that a sole-proprietor faces, but with an added potential conflict: the partner(s). If there is a partnership agreement in place, you will need to confirm that any contemplated transfer is dealt with in accordance with the partnership agreement.
If your business is operating as a corporation, then the corporation will typically be the owner of the business assets and a transfer of ownership to children can be completed by transferring ownership shares. This may be subject to any shareholders agreements in place.
Estate, Tax & Succession Planning
No matter the business structure, the transfer of a business can be completed without complication if the proper estate, tax and succession plans are in place. Choosing the right corporate/commercial lawyer will give you the peace of mind that your business will be transferred the way you want, without any surprises.
As a sole-proprietor, you will want to make sure that you have a valid Will in place which deals with the business assets accordingly. If the business is going to continue with the same name or requires licensing, you will want to have clauses in your Will noting applicable transfers.
A partnership will require the same planning as a sole-proprietorship, however you will need to ensure that the transfers indicated in your Will are not restricted or contradicted by your partnership agreement.
In any case, it is recommended that you hire experienced tax professionals so that you are aware of the tax implications of a transfer.
When dealing with a corporate business there may be a variety of options available to you for estate and tax planning that wouldn’t be available with other business structures, an estate freeze being one such example. To ensure that you receive the best advice, lawyers will often work together with accountants to determine the best plan available and prepare the necessary documentation to execute that plan accordingly.
After all, when transferring your business, the ultimate goal should be to complete the transfer in an effective and timely manner without any negative tax implications. Surrounding yourself with the best team of professionals will help you achieve that goal.
