Business Succession Planning Archives

Succession planning is a crucial aspect of any business owner’s life. As entrepreneurs forge ahead, planning for a seamless transition of their enterprise to the next generation or a chosen successor is vital to ensuring the business’s longevity. Business succession planning is not merely a contingency plan but a strategic imperative that requires thoughtful consideration, meticulous preparation, and a comprehensive understanding of the legal and financial implications.

Why Is Succession Planning Important?

Business succession planning involves transferring ownership and management of a business to a new owner, such as an immediate family member or another chosen entity. When planning to leave behind such a legacy, business owners should take adequate time and care in preparing their succession plans. By doing so, they can maximize the ongoing value of the business, minimize disruptions, and be confident, knowing they provided their successors with the resources and knowledge required to help the company continue to grow and succeed.

Some critical considerations for business succession planning are set out below.

A Clear Exit Strategy

When any entrepreneur begins to consider their future within their business, it is essential for them to identify the needs and goals of both themselves and the business well in advance of any transition in leadership. While the planning process may be abstract and non-linear, it is vital to formally identify key elements of the transition as early as possible. While there are numerous considerations to think about, it is important to be forward-thinking in any approach and consider any trends and factors that may impact the daily operations and financial stability of the business to minimize as many unknowns as possible. Addressing potential issues before they arise, such as tax planning, economic trends and the impact of a change in leadership on employees and clients, aids with a seamless transition.

Identify Likely Successors

A business owner should take extensive care and consideration when considering who will take over their business and lead in their footsteps. Sometimes, the business might pass on to the owner’s children or other family members. However, in other circumstances, owners may wish for a key existing management-level employee to take the reins. Alternatively, an owner may want to value and sell their business to an unrelated third party.

Whatever the case, clearly identifying successors is an essential component in succession planning, as it can dictate what direction the succession strategy will go. For example, a child taking over the business may already have the necessary knowledge and training to step in at any time, while an existing management-level employee may require additional training and preparation to step into such a role.

Proactive Financial Planning

In the business world, financial planning is a crucial and ongoing consideration for any business owner. When it comes to succession planning, an entrepreneur must first consider what they must do to ensure the business remains financially stable. Next, they should identify what financial involvement they will have, if any, after stepping away. If an existing owner wishes to remain invested in the business, it is crucial to determine what this arrangement will look like.

Address Estate Planning Concerns

Once a business owner has completed a retirement analysis and has identified likely successors to take over, it is vital to prepare (or update) an estate plan. This is particularly important if the ownership of the business remains within the family, as fair consideration has been given to those individuals through the estate plan, and if the business valuation represents a substantial portion of the estate. Owners may also want to consider an “estate freeze” to help transition the business to a family member. Additional tax and trust options may also be explored to ensure the estate plan adequately considers all involved.

Prepare a “Plan B”

Although preparing a comprehensive business succession plan with the help of an experienced business lawyer is critical, entrepreneurs need to have a “Plan B”. Life can change quickly, and having some type of contingency set in place can make all the difference. This is particularly the case if an accident occurs, rendering an owner unable to make such decisions at a later date, such as a permanent disability or sudden death. By having a backup plan, owners can ensure that new management of the business will be implemented immediately to mitigate any impact on customers, clients, and employees.

Consequences of Poor Planning

Failing to prepare an adequate business succession plan can result in several issues, as set out below.

Operations Disruptions

Without a clear transition plan, a business can be subjected to several interruptions in operations to workflow, employee training, and project timelines. Furthermore, if accounts payable and accounts receivables are not properly maintained throughout the transition, the business may experience deficits and missed payments. All of these disruptions can ultimately impact customer experience and service quality.

Employee Challenges

Without a clear succession plan, business owners may face challenges in retaining employees and maintaining morale. Employees may look for alternative opportunities if they perceive a lack of stability or advancement opportunities within the business. As such, companies risk losing not only key talent but also their institutional knowledge and corporate memory of day-to-day operations. Further, employees may have reduced motivation and accountability when a structural change is poorly planned.

Shareholder and Customer Concerns

Shareholders, clients, and customers may express concerns or lose confidence in the business if they perceive instability during a leadership transition or corporate restructuring. Such a loss of trust and confidence can be difficult to rebuild, ultimately impacting the business’s reputation and bottom line. Uncertainty surrounding the departure of a critical figurehead may also cause stakeholders to revoke their support for the company.

Family Disputes

Poor succession planning can result in family disputes if a business is family-owned or involves several family members. Without a clear plan, disagreements may arise relating to asset distribution, leadership roles, and overall management decisions.

How a Corporate Lawyer Can Help You Prepare Your Succession Plan

If you are starting to think about business succession planning but do not know where to start, an experienced corporate lawyer can help ensure you cover all of your bases and have a sound succession plan in place for when you choose to step away from your enterprise. Not only can a knowledgeable business lawyer help you identify your retirement goals and develop a practical exit strategy, but they can also help you work through the more intricate parts of succession planning. These considerations include transitioning the business to a successor, obtaining a business valuation, and mitigating conflicts that may arise throughout the process.

Once a business succession plan has been prepared, it is essential for any business owner to continue to document any relevant information successors or professionals may need and communicate the future transition plans to everyone involved as early as possible to allow adequate time for preparation.

Contact the Corporate Lawyers at Baker & Company for Trusted Guidance on Business Succession Planning in Toronto

At Baker & Company, our Toronto business succession planning lawyers can help you establish a business succession plan tailored to your needs. We have extensive experience and expertise in providing clients with advice on corporate law and estate law. We can guide you in implementing the plan that works best for you and ensures your business’s future success. Call us at 416-777-0100 or contact us online to schedule an initial consultation with a member of our business law team.

Recently, Minister of Finance Chrystia Freeland presented the federal government’s 2022 Budget Implementation Act which included reforms aimed at “making Canada’s economy more competitive.”

Making Canada’s Economy More Competitive

The Competition Act (the “Act”) is a federal law governing competition in Canada aimed at maintaining competition by regulating anti-competitive practices. It is enforced and administered by the Competition Bureau, and cases are adjudicated by the Competition Tribunal. The Act contains both criminal and civil enforcement provisions, including imprisonment and/or fines for failing to comply with the Act.

The purpose of the Act is:

…to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.

Budget 2022 specifically announces the government’s intention to introduce legislative amendments to the Act as a preliminary phase in modernizing the competition regime. This will include fixing loopholes; tackling practices harmful to workers and consumers; modernizing access to justice and penalties, and adapting the law to today’s digital reality.

As Budget 2022 states:

“A competitive economy is a fair, growing, and innovative economy. In this regard, the government will consult broadly on the role and functioning of the Competition Act and its enforcement regime. However, there are also shortcomings in the Act that can easily be addressed and move Canada in line with international best practices.”

These proposed changes come on the heels of a call from the Commissioner of Competition for “a comprehensive review of the Competition Act.” The Commissioner further noted that “[w]e need to have a debate in Canada about what our competition law should look like in the 21^st century.” In September 2021, Edward M. Iacobucci, Toronto Stock Exchange Chair in Capital Markets Regulation, released a consultation paper which examined the application of the Act in the new digital age. In response, the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry, issued a statement on affordability and competition in Canada’s telecommunications sector, stating that the government would be reviewing the Act and considering amendments in order to modernize it:

“In recognition of the critical role of the Competition Act in promoting dynamic and fair markets, the Minister will also carefully evaluate potential ways to improve its operation.”

The Act has not been frequently amended with the last comprehensive revisions having been done in 1986 and the most significant amendments dating back to 2009. While new amendments are expected, it is still not certain which competition laws will be changed and how. The competition law community continues to speculate on just how the Act will be reformed.

Driving Investment and Growth for Small Businesses

Budget 2022 also intends to address the barriers that are preventing small businesses from growing. This includes reducing payment card fees for merchants. It will also help Canadian businesses make the most of global trade opportunities, while better protecting Canadian businesses against unfair competition.

Creating a Canadian Innovation and Investment Agency

Budget 2022 announces the government’s intention to create an operationally independent federal innovation and investment agency, and proposes $1 billion over five years, starting in 2022-23, to support its initial operations. Final details on the agency’s operating budget are to be determined following further consultation later this year.

The new innovation and investment agency will proactively work with new and established Canadian industries and businesses to help them make the investments they need to innovate, grow, create jobs, and be competitive in the changing global economy. The government will consult further with both Canadian and global experts in finalizing the design and mandate of the new agency, with details to be announced in the 2022 fall economic and fiscal update.

Launching the Canada Growth Fund

Budget 2022 proposes to establish the Canada Growth Fund to attract substantial private sector investment to help meet important national economic policy goals:

To reduce emissions and contribute to achieving Canada’s climate goals
To diversify our economy and bolster our exports by investing in the growth of low-carbon industries and new technologies across new and traditional sectors of Canada’s industrial base; and
To support the restructuring of critical supply chains in areas important to Canada’s future prosperity—including our natural resources sector.

The Canada Growth Fund will be a new public investment vehicle that will operate at arms-length from the federal government. It will invest using a broad suite of financial instruments including all forms of debt, equity, guarantees, and specialized contracts. The fund will be initially capitalized at $15 billion over the next five years. It will invest on a concessionary basis, with the goal that for every dollar invested by the fund, it will aim to attract at least three dollars of private capital.

In creating the Canada Growth Fund, the government intends to seek expert advice from within Canada and abroad. Following these consultations, details about the launch of the fund will be included in the 2022 fall economic and fiscal update. Funding for the Canada Growth Fund will be sourced from the existing fiscal framework.

Contact the Corpoate Lawyers at Baker & Company in Toronto for Assistance with Corporate Law Issues

The knowledgeable team of corporate lawyers at Baker & Company will continue to monitor for changes to the Act and how competition law reform may impact your corporation and business practices. We can assist your company in proactively responding to today’s business environment, whether you are a small or large size organization and tailor responsive and strategic legal solutions to meet your company’s individual needs. To speak with a lawyer about employment policies or any other employment law issue, contact us online or by phone at 416-777-0100.