GET IN TOUCH
Please contact us for more information. Our email is monitored seven days a week and we will get back to you shortly.
In Canada, the vast majority of businesses are small businesses, usually owned and operated by families or sole traders. For many business owners, their small business and its assets make up a large portion of their net worth and estate’s value. It’s extremely important that they prepare a detailed estate plan. Having a comprehensive business estate plan can ensure the business continues after the owner’s death. Further, a detailed plan can help to efficiently wind up a company, allowing beneficiaries to receive their inheritance promptly if the owner doesn’t wish to continue operations after they pass away.
Though a will is the most common and best understood part of every estate plan, there are many other testamentary documents that business owners should consider incorporating in their estate plan. In this article, we’ll go over some of the most common and important documents that business owners should consider when creating their estate plan.
It’s critical that business owners have a will to ensure the continuation of their business and minimize risk of estate litigation. Business owners can use their will to transfer ownership of their company and assets to their successor or business partners. Their will can express their intentions for the continuation of the business, and who is to take over their responsibilities when they die, or lose the ability to continue working. It’s important to note that most small business owners don’t draft a separate will just for their business. Sole traders and those operating under other small business organizations will usually include business assets in their personal will.
Without a will, family, beneficiaries and your executor will have little way of knowing or proving what you intended to happen to the business. A family member who wishes to wind up the company or who doesn’t have management experience may inherit the responsibility. In some cases, it’s in the company’s best interest for your business partners to receive your portion of ownership rather than a family member. Sometimes, a company’s articles of association might mandate that shareholders are transferred ownership. In this case, business owners can choose to sell their shares and give the proceeds to estate beneficiaries. In any case, it’s important to understand your intentions, rights and obligations concerning the company when you draft your will.
You can’t use a will as a sale device, and a will can’t order the sale of the ownership to someone else. To do this, the testator would need to prepare a buy-sell agreement.
A buy-sell agreement is a document that details who will buy the testator’s shares in the company when they die. The agreement usually includes any conditions that must be met before the shares can be sold, and the price of the shares. Usually, buy-sell agreements are made between existing owners, giving them the first rights to buy the shares.
Depending on the circumstances, it usually makes more sense to give ownership shares to those already actively involved with the company, rather than family members. Existing shareholders understand the business’s operations and can usually better ensure it remains running and profitable. Depending on the share structure of the company, this can ultimately benefit your beneficiaries more than if they had inherited partial ownership.
A succession plan details how you envision the future of your company after you leave. Succession planning is an ongoing process that you should be mindful to engage with as your company grows and changes. The purpose of the succession plan is to detail how your business will continue to function without you. It helps to ensure that long-term strategies for transitioning knowledge, skills, and management are in place. This can include information on the short- and long-term future of the company, specific business plans, and who will maintain which roles in the company. Business owners often use succession plans as a way to officially document what they expect from their successors and to hold them accountable.
A power of attorney is someone you appoint to handle financial and legal responsibilities on your behalf while you are alive. It’s a good idea to appoint someone who you trust to take on this role in the unfortunate event that you become suddenly incapacitated. A power of attorney acts on your behalf up until your death. Some of the tasks that a power of attorney can handle include the business transactions that you are normally responsible for.
While it’s always good to prepare an estate plan early, you should be careful to review the plan frequently. People and businesses change over time and estate plans should be updated to reflect the state of the business.
If you’re a business owner and want to begin preparing your estate plan, contact an experienced estate lawyer today. We can help guide you through the estate planning process, ensuring that your business survives you, exactly as you envision it.
Have a question about this topic or a different legal topic? Contact us for a free consultation. Reach us via phone at 250-888-0002, or via email at info@leaguelaw.com.