Succession Planning

When small business owners inquire about succession planning, advisers understandably jump to tax planning strategies. 

But what are some of the tangible, day-to-day things that small business owners can do to assist with succession planning? 

1. Keep your minute books up to date.  It may seem trite to say, but it’s important to keep resolutions signed, director and shareholder registers current, and share certificates issued or cancelled.  If these tasks are not attended to, they create a lot of work (read: legal costs) to correct in future.  In the worst case, litigation may ensue because the person in charge is no longer around to help “set the record straight.”
   
   If your business will likely be sold on your death/incapacity, a purchaser will want to see a clear and clean transfer of shares throughout the life of the corporation; resolutions properly approved; and people appointed and removed from offices in the manners required by law.  All agreements binding on the corporation should be kept in the minute book, such as Shareholders’ Agreements, stock options, etc.  A purchaser will want to ensure that they are not inheriting liabilities and possible litigation.  An up-to-date minute book is a critical part of that equation.
   
   If your business is not one that will be sold, then your minute book still needs to be up to date to substantiate tax filings.  Share ownership must be clear, so that CRA is satisfied that the right person is paying the right amount of tax.
   
   
2. Follow through on Death and Incapacity Clauses.  If you’re incorporated or part of a partnership, be sure to follow through on the requirements of the death and incapacity clauses of your shareholders’/partnership agreement.  If the agreement requires that each party maintain life insurance, has this been done - in the right amount and with the appropriate beneficiary designated?  If life insurance is not called for, be sure to map out how your interest in the business will be liquidated.  Be sure to answer the question: where will the cash come from to buy out your interest?
   
   
3. Who will do the work?  In many cases, the “business” is you.  For example, if you operate a regulated business – a legal/medical/dental/accounting/psychology, etc. practice, then you may be wondering what happens if you are no longer able to practice.  First, be aware of the rules imposed on you by your regulatory body in the event of your incapacity or death.  Of particular concern are your client/patient files: these will have to be handled in accordance with applicable law.  Therefore, ensure that your Will and Power of Attorney for Property respect your professional rules, or at the very least, ensure that your Will and POA for Property flags the matter for your Executor/Attorney to investigate.  As recommended by several professional regulators, it is also a good idea to get a limited Power of Attorney for Property for your practice, whereby you appoint a colleague to manage your practice in your place.
    
4. Develop systems.  Whomever steps in for you will need access to certain information to carry on your business.  Think of a way to make this important information available to them.  Consider preparing a short manual to help guide your Executor/Attorney through your business processes and records.
   
   
5. Build your team. An accountant, financial adviser, lawyer and others who grow alongside your business will be invaluable as you build your business and contingency plan for it.  They will also be great sources of information and support to your Executor/Attorney when they are called upon to step in.  So start early with building the right team of professional advisers.  Those closest to you will be glad that you did.