BUSINESS SUCCESSION PLANNING
A Plan for Your Business, Family and Financial Future.
Succession planning for family businesses and privately held companies is about more than who takes over. It’s about tax efficiency, financial security, family dynamics, shareholder interests and ensuring the value you’ve built continues to create opportunity for the people and causes that matter most.
BUSINESS SUCCESSION PLANNING
A Business Doesn't Transfer Itself.
It Takes Planning
Your business may be one of the most valuable assets you will ever own — and one of the most complicated to pass on.
A successful succession requires more than deciding who takes over. It can involve valuation, ownership structure, taxes, family dynamics, estate planning and the future role of the current owner.
We help business owners and farm families think through those decisions well before a transition is required, coordinating the financial strategy around the people, business and legacy involved.
BUSINESS SUCCESSION PLANNING
A Plan for Your Business, Family and Financial Future.
Business succession is about more than who takes over. It’s about tax efficiency, financial security, family dynamics and ensuring your life’s work continues to create opportunity for the people and causes that matter most.
01
Define The Future You Want
What do you actually want to happen?
Succession starts with a clear vision. Your goals will shape every decision that follows. Do you want to keep the business in the family? Step back gradually? Sell to a management team or a third-party buyer? Maintain an income stream? Or transition into full retirement? You will need a clear idea.
Clarify personal, family and business goals
Understand timing and involvement
Evaluate all transition options
Align business, wealth and lifestyle objectives
02
Know What You've Built
What is the business really worth?
Understanding the true value of your business is essential for making informed decisions. We help you look beyond basic financials to assess profitability, growth potential, key person dependencies, assets and industry conditions, so you have a realistic view of what you've built.
Business valuation analysis
Review of financials and growth potential
Assessment of key risks and opportunities
Benchmarking against your industry and market
03
Structure The Transition
How does ownership actually change hands?
There are multiple ways to transition a business, and each comes with different tax, legal, financing and estate planning implications. We work with your legal, accounting and other professional advisors to structure a transition that minimizes your risks and maximizes your opportunities.
Family transfer strategies
management buyouts
Third-party sale preparation
Tax -efficient structuring
04
Prepare The Next Generation
Is the next generation ready for new responsibilities?
Succession is about more than transferring ownership. It means preparing the next generation for leadership. We help families establish transition plans while addressing communication, successor readiness and the financial considerations that support long-term business succession.
Leadership development
Governence and decision making
Family communication and alignment
Transition timelines and milestones
05
Protect What Comes After
What happens to teh wealth you've created?
A business succession can create significant personal wealth. Planning what happens next is equally important, from investment management and retirement to tax planning, estate planning and wealth preservation. We help integrate the transition with your broader financial and legacy strategy.
Investment and income planning
Tax and estate planning
Wealth preservation strategies
Legacy and charitable giving
THE COMPLEXITY IS IN THE DETAILS
A SUCCESSION PLAN IS MORE THAN A PLAN FOR WHO GETS THE BUSINESS.
The most important succession decisions are often made years before ownership ever changes hands.
A properly structured succession plan brings together corporate structure, tax planning, shareholder agreements, insurance, estate planning, valuation, financing, family dynamics and the eventual investment of the wealth created by the business.
No single professional owns all of those pieces.
That’s why the right advisor isn’t necessarily the person doing all of the work. It’s the person making sure all of the work fits together.
YOUR SHAREHOLDER AGREEMENT MAY BE THE MOST IMPORTANT DOCUMENT YOU NEVER READ.
If you own a private corporation with other shareholders, your shareholder agreement isn’t simply a document for resolving disagreements.
It can determine what happens to your shares when someone dies, becomes critically ill, wants to leave the business, becomes disabled, goes bankrupt, gets divorced or triggers a buy-sell provision.
It can determine who has the right — or obligation — to purchase those shares, how the shares will be valued, how the purchase will be funded and what happens to the surviving family.
And those details matter enormously.
THE DETAILS MATTER
YOUR SHAREHOLDERS AGREEMENT SHOULD ANSWER THE UNCOMFORTABLE QUESTIONS.
A shareholders agreement is easy to appreciate when everything is going well. The real test is what happens when something changes.
What happens if a shareholder dies?
The death of a shareholder can create one of the most complicated situations a privately held business will ever face. The issue isn’t simply what happens to the shares. It can affect ownership, control, surviving shareholders, the deceased shareholder’s family, the estate, business valuation and the liquidity required to complete the transition.
A well-designed shareholder agreement or unanimous shareholders agreement (USA) should anticipate this possibility before it happens. Depending on the structure, it may establish who must purchase the shares, how they will be valued, how the transaction will be completed and how the purchase will be funded.
This is where buy-sell planning becomes critical.
The shareholder agreement, valuation methodology, ownership structure, life insurance and tax planning should work together.
Life insurance is often used to provide liquidity for a shareholder buyout, but owning a policy alone does not create a complete succession plan. The funding strategy needs to align with the obligations created by the shareholder agreement.
There are also important estate planning and tax considerations. What happens to the deceased shareholder’s family? Does the estate receive cash or continue to hold shares? Is there sufficient liquidity for taxes and other obligations? How will the shares be valued?
Where corporate-owned life insurance is involved, the Capital Dividend Account (CDA) may also become part of the planning conversation. The interaction between insurance proceeds, the CDA, the share transaction, the shareholder agreement and the estate plan can materially affect how wealth ultimately moves between the corporation, surviving shareholders and the estate.
And this is where many succession plans fall short.
A shareholder agreement written years ago may contain an outdated valuation formula, insufficient funding or provisions that no longer reflect the business, ownership structure or family circumstances.
A shareholder’s death isn’t simply an insurance problem. It isn’t simply a legal problem. It isn’t simply a tax problem. It is a business succession, ownership, estate, tax, valuation, liquidity and wealth-planning problem occurring at the same time.
That’s why strong business succession plans are built before they are needed—and reviewed as the business, ownership and family circumstances change.
What if a partner becomes critically ill or disabled?
A shareholder’s death creates a definitive change in ownership. Critical illness or disability can be far more complicated.
A business owner may remain a shareholder while being unable to work, participate in management or fulfill the responsibilities they previously carried. At the same time, the business still has to operate, the other shareholders still have responsibilities, and the affected shareholder and their family may have very different financial needs.
This is where a properly structured shareholder agreement, buy-sell agreement or unanimous shareholders agreement (USA) becomes particularly important.
The agreement can establish what happens when a shareholder experiences a significant health event and whether that event creates a right or obligation to purchase the affected shareholder’s shares. The definitions matter. So do the triggering conditions, waiting periods, valuation provisions, purchase obligations and funding mechanisms. Canada Life ACP
“Disabled” is not necessarily the same thing as “unable to work.”
The agreement and insurance policies may use specific definitions of disability, critical illness or incapacity. Those definitions can determine when a contractual obligation is triggered and when insurance proceeds may become available. A planning document can therefore look perfectly reasonable at a high level while leaving significant uncertainty in the details.
There is also an important distinction between temporary disruption and permanent ownership transition.
What happens if a shareholder is expected to recover?
What happens if the shareholder can work in a limited capacity?
What happens if they can no longer perform their previous role but remain an owner?
What happens if the condition becomes permanent?
And what happens if the shareholder wants to remain invested in the business even though they can no longer participate operationally?
These aren’t merely insurance questions. They can become questions of ownership, control, governance, valuation, cash flow and business continuity.
THE FUNDING QUESTION
If an agreement requires a shareholder’s interest to be purchased following a critical illness or disability, the next question becomes: where does the money come from?
Critical illness insurance and disability insurance can potentially be used to fund buy-sell obligations, depending on the structure and policy terms. Different forms of coverage can have very different purposes, payment structures and triggering conditions. Canada Life
But having insurance isn’t the same thing as having adequate funding.
The business may have grown substantially since the coverage was originally established. The shareholder’s ownership interest may be worth significantly more than it was when the policy was purchased. Debt may have changed. Ownership may have changed. The shareholder agreement may have been amended. New shareholders may have joined.
The funding needs to keep pace with the obligation.
Otherwise, a business can have a perfectly valid buy-sell provision without having the financial resources necessary to execute it.
THE HUMAN SIDE MATTERS TOO
There is another layer that is easy to overlook.
A critically ill or disabled shareholder isn’t simply an asset being transferred. They may have spent decades building the company. Their family may depend on the income generated by their ownership. The remaining shareholders may depend on the business continuing without disruption.
That creates competing objectives:
The affected shareholder may need financial security.
The remaining shareholders may need certainty over ownership and control.
The business may need liquidity and continuity.
The family may need clarity about what happens to the shareholder’s wealth.
A strong succession plan recognizes all four.
And like death planning, the ownership structure, shareholder agreement, valuation methodology, insurance, tax planning, estate plan and broader wealth strategy should not be developed independently.
They need to work together.
A business succession plan shouldn’t only answer what happens when someone dies.
It should also answer what happens when someone is still alive — but can no longer participate in the business the way they once did.
What if one shareholder wants out?
Not every ownership transition begins with a death, illness or retirement.
Sometimes a shareholder simply wants to leave.
Perhaps their priorities have changed. Perhaps they want to retire, pursue another opportunity, reduce their involvement in the business or monetize the wealth they have built. Whatever the reason, a shareholder wanting to exit can create significant consequences for everyone else.
The question is not simply whether a shareholder can sell their shares.
The bigger question is:
Who can buy them, how will the shares be valued, and what happens if the other shareholders don’t want the proposed buyer?
A well-structured shareholder agreement or unanimous shareholders agreement (USA) can establish rules around the transfer of shares and the circumstances under which a shareholder may or must sell. These provisions can include transfer restrictions, rights of first refusal, purchase rights, valuation mechanisms and procedures for completing the transaction. ISED Canada
WHO GETS TO BUY?
This is one of the fundamental questions in shareholder exit planning.
A privately held business generally cannot be treated like a publicly traded stock where an owner can simply place an order and walk away.
The remaining shareholders may have legitimate concerns about who becomes their new business partner.
An agreement may therefore restrict transfers to outside parties or give existing shareholders an opportunity to purchase the shares first. A right of first refusal, for example, can provide existing shareholders with an opportunity to purchase shares before they are sold to an outside party. ISED Canada
That becomes particularly important when the potential buyer is someone the remaining shareholders don’t know, don’t trust or don’t want involved in the business.
Ownership is also control. Bringing a new shareholder into a closely held company can affect voting rights, decision-making, governance, dividends, management and the future direction of the business.
THEN COMES THE QUESTION OF VALUE
Even when everyone agrees that a shareholder should exit, they may not agree on what the shares are worth.
This is where business valuation becomes critical.
A shareholder agreement may contain a predetermined valuation formula, establish a process for determining fair market value or provide for an independent valuation. The methodology matters because the value of a private company isn’t necessarily obvious from its financial statements or from a simple calculation of its assets.
Consider the difference between:
- What the business is worth today.
- What the agreement says it’s worth.
- What a qualified valuation professional determines it’s worth.
Those numbers may not always be the same.
And if the agreement was written years ago, the valuation methodology may no longer reflect the size, profitability, capital structure or circumstances of the business.
That can turn an otherwise straightforward shareholder exit into a serious dispute.
WHAT HAPPENS IF THEY CAN’T AGREE?
This is where shareholder agreements become particularly important.
A strong agreement doesn’t only contemplate the ideal scenario where everyone agrees on the buyer, the valuation and the transaction terms.
It also anticipates disagreement.
Depending on the agreement, mechanisms can exist for resolving disputes, determining value, establishing purchase rights or triggering a structured buyout. Some agreements also contain shotgun provisions, which can create a mechanism for resolving certain ownership disputes by allowing one party to propose a price at which the other party must either buy or sell.
These mechanisms can be powerful. They can also have significant financial and strategic consequences.
That’s why the language, valuation methodology, funding requirements and triggering conditions deserve careful consideration when an agreement is originally drafted and whenever the business or ownership structure changes.
AND THEN THERE’S THE FUNDING
A shareholder agreement can establish an obligation to buy shares. That doesn’t automatically mean the buyer has the money to do it.
A business worth several million dollars can create a very different funding requirement than the same business was worth when the shareholder agreement was originally signed.
The potential funding sources may include corporate cash, financing, shareholder resources, structured payments or other arrangements, depending on the circumstances.
The important point is that the purchase obligation and the funding strategy need to make sense together.
Otherwise, the agreement may establish a theoretical solution without providing a practical way to complete the transaction.
THE EXIT SHOULD NOT CREATE A NEW PROBLEM
There is one final consideration that is often overlooked.
The shareholder leaving the business isn’t simply selling an investment.
They may be transitioning out of one of their largest personal assets.
The proceeds from a shareholder buyout can fundamentally change their personal financial position and may create new considerations around investment management, retirement planning, tax planning, estate planning, liquidity and wealth preservation.
Meanwhile, the remaining shareholders may be taking on additional ownership and potentially additional debt or financial obligations.
So the transaction affects both sides of the balance sheet.
A successful shareholder exit therefore requires more than determining how shares change hands.
It requires coordination between the shareholder agreement, business valuation, tax planning, financing, corporate structure, estate planning and the shareholder’s broader personal wealth strategy.
Because when one shareholder wants out, the question isn’t simply:
“How do we get them out?”
It’s: “How do we transition the ownership without creating a new problem for the business, the remaining shareholders or the departing shareholder?”
What if shareholders cannot agree?
Yes. This one should be one of the strongest answers on the entire page, because shareholder deadlock is where the theoretical succession plan starts becoming very real.
WHAT IF SHAREHOLDERS CANNOT AGREE?
Disagreement between business partners is inevitable. The real question is what happens when the disagreement becomes impossible to resolve.
In a closely held business, shareholders may disagree about major decisions involving growth, borrowing, compensation, dividends, acquisitions, selling the company, bringing in new shareholders or the future direction of the business. When ownership is concentrated, a disagreement between two or more shareholders can quickly become a governance problem, a control problem and ultimately a succession problem.
A properly structured shareholder agreement or unanimous shareholders agreement (USA) can establish rules for significant decisions and provide mechanisms for dealing with disputes, deadlocks and potential ownership transitions.
WHEN 50/50 BECOMES 50/50
A 50/50 ownership structure can look perfectly balanced when everyone agrees.
But what happens when they don’t?
Neither shareholder may have enough voting power to resolve the issue independently. The result can be a shareholder deadlock — where neither side can move the business forward because the required decision cannot be reached.
And deadlock doesn’t necessarily mean the shareholders are fighting.
Sometimes both parties genuinely believe they are doing what is best for the company.
One may want to reinvest heavily in the business.
The other may want to reduce debt.
One may want to sell.
The other may want to continue growing.
One may want to bring a family member into the business.
The other may strongly oppose it.
The underlying issue is not necessarily who is right. It’s what happens when the shareholders cannot agree.
THE AGREEMENT SHOULD HAVE A PLAN FOR DISAGREEMENT
This is where dispute-resolution provisions become important.
A shareholder agreement can establish procedures for addressing disagreements, potentially including negotiation, mediation, arbitration or other mechanisms designed to prevent a dispute from immediately becoming litigation. It can also establish decision-making thresholds for significant corporate decisions.
The important consideration is that these mechanisms need to be understood before the dispute occurs.
Once relationships have deteriorated, it becomes considerably more difficult to negotiate the rules of engagement.
That’s why some shareholder agreements go further and establish a mechanism for ultimately separating the shareholders when a deadlock cannot be resolved.
THE SHOTGUN CLAUSE
One of the most recognizable examples is the shotgun clause, sometimes referred to as a shotgun buy-sell provision.
In a traditional structure, one shareholder offers to buy the other’s shares at a specified price. The other shareholder then has the choice of either selling at that price or purchasing the offering shareholder’s shares at the same price.
The concept is straightforward:
Someone has to be willing to put a number on the table.
But the simplicity can be deceptive.
A shotgun clause can have significant financial consequences, particularly when shareholders have substantially different financial resources. A shareholder with greater access to capital may be in a very different position from one who cannot readily finance a purchase.
Is the mechanism actually fair under the circumstances in which it might be used?
A provision that looks perfectly reasonable when an agreement is drafted may produce a very different result years later when the business is worth substantially more or the shareholders’ financial circumstances have changed.
VALUE BECOMES CRITICAL
Deadlock and valuation are often closely connected. If the ultimate solution involves one shareholder buying another shareholder’s interest, there needs to be a mechanism for determining what those shares are worth.
That could involve a predetermined formula, an agreed valuation methodology, an independent business valuation or another mechanism established in the agreement.
But the valuation methodology itself can become a source of disagreement.
What happens if the business has grown dramatically since the agreement was written?
What happens if the formula produces a value that no longer reflects the economics of the business?
What happens if one shareholder believes the business is worth $10 million and another believes it is worth $6 million?
The valuation mechanism becomes part of the succession plan.
AND THEN THERE’S THE BUSINESS ITSELF
This is where shareholder disputes can become particularly dangerous.
The business still has employees.
Customers still need to be served.
Suppliers still need to be paid. Debt still needs to be serviced. Payroll still has to run. The disagreement between shareholders doesn’t stop the underlying business from operating.
A poorly structured dispute can therefore create consequences far beyond the relationship between the shareholders. It can affect business continuity, financing, employees, customers, enterprise value and ultimately the wealth of everyone involved.
And if the dispute continues long enough, the value of the business itself can become part of the problem.
THE AGREEMENT IS SUPPOSED TO WORK WHEN RELATIONSHIPS DON’T
This is ultimately why shareholder agreements deserve more attention than they often receive. When everyone is getting along, the agreement can feel almost unnecessary.
When everyone agrees on the future, nobody needs to test the provisions.
The real test comes when the shareholders no longer agree.
At that point, the agreement may determine how decisions are made, how disputes are handled, whether an exit mechanism exists, how shares are valued and how an ownership transition can occur.
And that’s why an agreement shouldn’t simply reflect how the shareholders feel about each other today.
It should anticipate how the business needs to function when circumstances change.
Because the purpose of a strong shareholder agreement isn’t to prevent every disagreement.
It’s to make sure a disagreement doesn’t become a crisis.
How are the shares valued?
Valuing shares in a private company is rarely as simple as putting a multiple on revenue or looking at the company’s balance sheet.
Unlike publicly traded shares, there is generally no active market establishing a daily price. The value of a closely held company’s shares can depend on the company’s earnings, assets, cash flow, industry, growth prospects, debt, goodwill, ownership structure and the specific rights attached to the shares.
This becomes particularly important when a shareholder agreement or buy-sell agreement requires shares to be purchased following death, disability, retirement, resignation or another triggering event.
The agreement may establish a valuation formula, a valuation process or a requirement for an independent business valuation. The wording matters because contractual rights and restrictions can themselves affect how shares are valued.
And there is an important question that business owners often overlook:
Does the valuation method in your shareholder agreement still make sense today?
A formula created when a business was worth $2 million may look very different when that same business is worth $10 million. Ownership may have changed. Profitability may have changed. Debt may have changed. New assets may have been acquired. The business may have entered completely different markets.
Even the distinction between enterprise value, equity value and the value of a particular shareholder’s interest can become important.
The size and nature of the shareholding, control rights, restrictions on transferring shares, different classes of shares and existing buy-sell provisions can all be relevant considerations in determining value.
That is why business valuation shouldn’t be treated as an afterthought.
The number written into the agreement matters — but so does how that number is determined, when it is determined and whether the methodology still reflects the business you’ve actually built.
And when a shareholder agreement hasn’t been reviewed for years, the valuation provisions may deserve just as much attention as the rest of the document.
How will the buyout actually be funded?
Having a buy-sell provision that requires one shareholder to purchase another shareholder’s interest is only half of the equation.
The other half is having the financial resources to actually complete the transaction.
A shareholder buyout can potentially involve corporate cash, financing, a promissory note, personal resources, insurance proceeds or a combination of funding strategies. The appropriate structure depends on the circumstances, the triggering event and how the shareholder agreement is designed.
Life Insurance is often considered in business succession planning because life insurance, critical illness insurance and disability insurance can potentially provide liquidity when a specific event triggers a buy-sell obligation.
But having insurance doesn’t necessarily mean the buyout is fully funded.
A business may have grown substantially since the policy was purchased. The shareholder’s ownership interest may now be worth considerably more than the original coverage. The shareholder agreement may also contain valuation provisions that have not been reviewed for years.
That creates an important planning question:
Does the funding strategy actually match the obligation created by the shareholder agreement?
There are also structural considerations around who owns the insurance, who receives the proceeds, how the shares are transferred and how the transaction interacts with the corporation, shareholders and the deceased shareholder’s estate.
Ultimately, the goal isn’t simply to have a source of money. The funding mechanism, valuation, shareholder agreement, insurance and tax strategy should all work together.
Otherwise, a business can have a carefully drafted buy-sell agreement — but no practical way to fund the promise it makes.
What happens if the shares are inherited by a surviving spouse?
When a shareholder dies, their shares generally become part of their estate and ultimately may pass according to the shareholder’s estate plan and applicable ownership and transfer rules. But inheritance does not necessarily mean the surviving spouse simply becomes a permanent business partner.
This is where the shareholder agreement becomes critical. Shareholder agreements can contain restrictions and procedures governing what happens to shares following a shareholder’s death, including provisions requiring a transfer or purchase of the deceased shareholder’s interest by the corporation or remaining shareholders.
That creates several important questions:
- Can the surviving spouse actually retain the shares?
- Does the shareholder agreement require the shares to be purchased?
- Who has the right or obligation to purchase them?
- How is the value determined?
- How will the purchase be funded?
- And perhaps most importantly:
Does the estate plan align with the shareholder agreement?
This is where business succession planning, estate planning, tax planning and insurance planning need to work together. A shareholder may have one intention for their family, while the corporate documents create a completely different outcome if the shareholder dies.
There can also be significant liquidity and tax considerations for the deceased shareholder’s estate. The family may need liquidity while the remaining shareholders may need certainty over who owns and controls the business going forward.
The objective isn’t necessarily to determine whether a spouse should own the shares.
The objective is to make sure everyone understands what happens if they do.
A strong succession plan considers the business, the surviving shareholders, the spouse, the estate, the funding and the tax consequences before a death forces those questions to be answered.
What if the partners spouse or children want to run the business?
A shareholder’s family may naturally want to continue the business after their spouse or parent dies. But inheriting shares and being capable of running the business are two very different questions.
A surviving spouse or child may become entitled to shares through an estate, but the shareholder agreement may contain restrictions governing whether those shares can be transferred, who can become a shareholder and what happens following the death of an owner.
This creates an important distinction between ownership, management and control.
Someone may inherit an economic interest in a business without being prepared to manage it. Conversely, a family member may be highly capable of running the business but have no automatic right to become an owner.
That is why family succession planning needs to consider questions such as:
- Does the family member actually want to run the business?
- Are they capable of taking on the responsibility?
- Do the other shareholders want them as a business partner?
- What does the shareholder agreement say?
- How will ownership and control be transferred?
- What happens to the other children or family members who aren’t taking over the business?
That last question can become particularly important in family businesses. Fair does not always mean equal. One child may ultimately receive an operating business while another receives other assets, investments, insurance proceeds or other forms of wealth.
The goal isn’t necessarily to treat every family member identically.
It’s to create a structure that considers the business, the family, the ownership interests and the wealth being transferred as one connected plan.
And this is where business succession planning and estate planning need to work together. A will can address someone’s estate, while corporate documents and shareholder agreements can govern important aspects of what happens to the shares.
The family may inherit the wealth. But who inherits the responsibility of running the business is a different question entirely.
What is a shotgun clause?
A shotgun clause is a buy-sell mechanism commonly included in shareholder agreements to provide a way out when business partners can no longer agree.
The basic concept is simple: one shareholder offers to buy the other shareholder’s interest at a specified price. The other shareholder then has the choice to either sell at that price or buy the offering shareholder’s interest at the same price.
The theory is that the shareholder naming the price has an incentive to make it reasonable. Set the price too low, and the other shareholder may choose to buy. Set it too high, and they may choose to sell.
But the simplicity of the concept can be misleading.
A shotgun clause can have significant consequences when shareholders have very different financial resources. A shareholder who has greater access to capital may be in a very different position from someone who would struggle to finance the purchase within the required timeframe.
There are also important questions around valuation, financing, timing, notice requirements, ownership percentages and exactly what circumstances allow the clause to be triggered.
And because shotgun provisions can have such significant consequences, the precise wording of the agreement matters. Alberta legal authorities have emphasized the importance of complying with the specific requirements of the provision.
Ultimately, a shotgun clause isn’t simply a way to “get rid of a partner.”
It’s a mechanism designed to create an exit when two shareholders can no longer move forward together.
And like every other provision in a shareholder agreement, its real value isn’t when everything is going well.
It’s when it isn’t.
What if the shareholders agreement is outdated?
A shareholder agreement can be perfectly appropriate when it is written — and become increasingly disconnected from reality as the business grows.
The company may be worth significantly more. Ownership may have changed. New shareholders may have joined. Debt, assets, insurance coverage and family circumstances may have changed. The original valuation formula may no longer reflect the business. Even the shareholders’ objectives may be completely different.
A shareholder agreement can address events such as death, disability, resignation, bankruptcy, divorce and shareholder exits, as well as transfer restrictions, valuation, funding and dispute resolution.
The important question isn’t simply:
“Do we have a shareholder agreement?” It’s “Does the agreement still reflect the business we own today?”
An outdated agreement can create uncertainty precisely when certainty is needed most. A buy-sell provision may no longer correspond with the value of the business. Insurance may no longer be sufficient to fund an obligation. Ownership provisions may not reflect the current shareholders. A valuation mechanism written years ago may produce a very different result from the value everyone assumes the business is worth.
And there is another important consideration: your shareholder agreement doesn’t exist in isolation.
It may need to work alongside your corporate structure, insurance arrangements, estate plan, wills, tax strategy and broader succession plan.
As the business changes, those pieces can drift apart.
A shareholder agreement should evolve with the business it was designed to protect.
The goal isn’t to constantly rewrite documents.
It’s to periodically ask whether the documents, funding and planning still make sense for the business, the shareholders and the families behind them.
What happens when insurance isn't enough?
Insurance can provide an important source of liquidity for a shareholder buyout, but the amount of insurance purchased years ago may not match the value of the business today.
A company may have grown substantially since the policy was established. A shareholder’s interest that was once worth $1 million could eventually be worth several times that amount. If the insurance coverage hasn’t kept pace, a funding gap can emerge when the buy-sell obligation is triggered.
That raises several questions:
- Where does the remaining capital come from?
- Could the purchase be financed?
- Could the buyout be structured with payments over time?
- Does the corporation have sufficient liquidity?
- Can the purchasing shareholder obtain financing?
- What happens if the agreement requires a purchase but the available funding falls short?
The issue can become even more complicated when the triggering event is death. The insurance proceeds, shareholder agreement, valuation, corporate structure, estate and tax considerations may all interact.
This is why buy-sell funding should be reviewed alongside business valuation and the shareholder agreement, rather than treating the insurance policy as a one-time decision.
A business worth $5 million today shouldn’t necessarily be relying on a funding strategy designed when it was worth $2 million.
The question isn’t simply whether you have insurance.
It’s whether the funding strategy still matches the obligation.
What happens when a shareholder gets divorced?
Divorce can create an unexpected layer of complexity for a privately held business. A shareholder’s ownership interest is an asset, and changes in a shareholder’s personal circumstances can raise questions about ownership, valuation, transfer restrictions and the potential involvement of a former spouse.
Shareholder agreements can specifically address divorce as a potential triggering event and establish rules governing what happens to the shares.
The important question isn’t simply whether a spouse has a claim to value.
It’s also whether a former spouse could become involved in the ownership or control of the business.
Consider the implications of a closely held company where one shareholder’s shares become subject to a family-law dispute.
The other shareholders may suddenly find themselves dealing with uncertainty over who ultimately owns the interest, how that interest is valued and whether the existing shareholder agreement provides a mechanism for dealing with the situation.
This is where shareholder agreements, business valuation, estate planning and personal planning can intersect.
A well-designed agreement may contain restrictions around transferring shares to third parties and provisions addressing specific life events. The exact structure and enforceability depend on the corporation, agreement and applicable law.
And there’s another question worth asking: When was the agreement last reviewed?
The business may be worth substantially more than it was when the agreement was signed. Share ownership may have changed. Family circumstances may have changed. The original provisions may no longer reflect the reality of the business.
A divorce may never happen.
But like death, disability or a shareholder wanting out, it is precisely the kind of event that is easier to plan for before it happens.
The goal isn’t to predict what will happen. It’s to make sure the business has a framework for dealing with it when circumstances change.
What happens if a shareholder claims bankruptcy?
A shareholder’s personal financial difficulties can create a very different kind of risk for a privately held business.
Shares are an asset, and bankruptcy can raise questions about who may ultimately control or acquire that ownership interest. This can become particularly important when the other shareholders have spent years building a business together and do not want an unknown third party becoming involved in the ownership structure.
A shareholder agreement can contain provisions addressing personal bankruptcy, share transfers and other triggering events, potentially establishing mechanisms for what happens to the shares and how an ownership transition is handled.
This raises important questions:
- Can the shares be transferred to someone outside the existing ownership group?
- Do the other shareholders have a right to purchase them?
- How would the shares be valued?
How would a purchase be funded? - Does the agreement actually address bankruptcy, or does it only address death and retirement?
There is also a broader issue: does the shareholder agreement still reflect the business as it exists today?
Ownership restrictions, valuation provisions and buy-sell mechanisms can become increasingly important as a company grows and the value of its shares increases.
The objective isn’t to assume that a shareholder will experience financial difficulty.
It’s to recognize that personal events can have corporate consequences when significant wealth is concentrated in a private business.
A well-considered succession plan looks beyond the obvious events and asks what happens when circumstances change in ways nobody expected.
What happens if a shareholder wants to sell to someone else?
A shareholder may want to sell their shares to an outside buyer, but in a closely held business, the other shareholders may have very legitimate concerns about who becomes their new business partner.
This is why shareholder agreements often contain share transfer restrictions, rights of first refusal, permitted transfers and other provisions governing how shares can be sold or transferred. (ised-isde.canada.ca)
Consider a business where three shareholders have spent twenty years building the company together.
One shareholder decides they want to sell their interest to an outside investor.
Without appropriate provisions, the remaining shareholders could potentially face a completely different ownership dynamic — including a new shareholder they never intended to work with.
A well-structured agreement can address questions such as:
- Does the existing shareholder have to offer the shares to the other shareholders first?
- Can shares be sold to a competitor?
- Can shares be transferred to a family member or holding company?
- Do the remaining shareholders have a right to approve a new shareholder?
- How is the purchase price determined?
- What happens if the existing shareholders cannot or do not want to buy the shares?
- These provisions aren’t simply about restricting someone’s ability to sell.
They’re about balancing a shareholder’s ability to realize the value of their investment with the other shareholders’ interest in protecting the ownership and control of the business.
And as the value of a company increases, these considerations become increasingly important.
Who owns the business tomorrow can be just as important as what the business is worth today.
What happens if the value of the business changes dramatically?
A business can look very different financially ten years after a shareholder agreement is signed.
A company that was once worth $2 million may eventually be worth $10 million, $20 million or more. Revenue, profitability, assets, debt, goodwill and ownership may all have changed substantially.
That creates an important question:
Does the shareholder agreement still produce a reasonable result based on the business you actually own today?
Valuation provisions can become particularly important when a shareholder dies, retires, becomes disabled or wants to exit. An agreement may contain a fixed value, formula or valuation methodology that made sense when it was created but no longer reflects the economics of the business.
There can also be a significant difference between the value of the business and the value ultimately attributed to a particular shareholder’s interest. Ownership percentage, share class, control, restrictions and the terms of the shareholder agreement can all become relevant.
And dramatically increasing business value can create another issue: funding.
Insurance that was sufficient when the business was worth $3 million may be completely inadequate when it is worth $12 million. A buy-sell obligation can therefore grow substantially while the funding strategy remains unchanged.
This is why business valuation shouldn’t be treated as something that only happens when someone is ready to sell.
As the business grows, the succession plan needs to grow with it.
The question isn’t simply, “What is my business worth?” It’s “If something happened today, would our agreement, valuation and funding strategy still work?”
THE QUESTION ISN’T WHETHER YOU HAVE AN AGREEMENT.
THE QUESTION IS WHETHER YOUR AGREEMENT STILL WORKS.
THE COMPLEXITY IS IN THE DETAILS
A SUCCESSION PLAN IS MORE THAN A PLAN FOR WHO GETS THE BUSINESS.
The most important succession decisions are often made years before ownership ever changes hands.
A properly structured succession plan brings together corporate structure, tax planning, shareholder agreements, insurance, estate planning, valuation, financing, family dynamics and the eventual investment of the wealth created by the business.
No single professional owns all of those pieces.
That’s why the right advisor isn’t necessarily the person doing all of the work. It’s the person making sure all of the work fits together.
Then THE QUESTIONS BECOME VERY REAL.
- Who buys the shares?
- At what price?
- Who pays the tax and when?
- Should I or a trust or a corporation sell/buy?
- How is the purchase funded?
- What happens to the surviving spouse?
- What happens to the children?
- What happens to the corporation?
- What happens if the shareholders disagree?
- What if someone becomes critically ill?
- What if someone wants out?
- What if a shotgun clause is triggered?
- What if the agreement hasn’t been updated in 15 years?
EVEN THE CAPITAL DIVIDEND ACCOUNT CAN CHANGE THE OUTCOME.
Consider a corporation with a significant Capital Dividend Account (CDA).
The CDA can represent significant tax-free distribution capacity to Canadian-resident shareholders, subject to the applicable rules and elections. Life insurance proceeds received by a private corporation can also contribute to the CDA. Canada
But having a CDA is one thing.
Making sure the corporate, shareholder, insurance, estate and buy-sell structures work together is another.
WHEN A SHAREHOLDER DIES, WHO GETS THE BENEFIT OF THE CDA?
Imagine two unrelated shareholders, John and Mike, each own 50% of a successful Alberta business.
- The company is worth $4 million.
- John’s shares are therefore worth approximately $2 million.
- John is married to Sarah.
- The corporation also owns a $2 million life-insurance policy on John’s life.
John dies unexpectedly.
At first glance, everyone thinks, “Good thing he had life insurance. The insurance will provide the money to buy John’s shares from Sarah.”
But that’s where the details begin to matter. Everything hinges on the wording in the unanimous shareholders agreement and the outcome can quickly become very different than intended.
THE COMPLEXITY IS IN THE DETAILS
SO WHAT COULD GO WRONG?
Imagine the agreement simply requires Mike, the surviving shareholder, to purchase John’s shares from Sarah’s estate.
The corporation receives the $2 million insurance proceeds, which may increase its Capital Dividend Account (CDA). A private corporation can potentially use its CDA to pay a capital dividend to its Canadian-resident shareholders, subject to the applicable rules and election. Canada
Now consider the outcome:
Mike receives the benefit of the corporation’s CDA.
Sarah receives the proceeds from selling John’s shares.
If the agreement doesn’t properly coordinate the insurance, buy-sell obligation and intended treatment of the CDA, the surviving shareholder could benefit from the tax-free corporate distribution while Sarah may face tax on the disposition of John’s shares.
The business has been protected. But was John’s family protected?
That’s the kind of detail that needs to be addressed before something happens.
THE DOCUMENT IS ONLY AS GOOD AS THE PLAN BEHIND IT.
A unanimous shareholders agreement shouldn’t be something that gets signed, put in a drawer and forgotten.
Business values change. Shareholders change. Families change. Tax rules change. Insurance policies change.
The agreement needs to change with them.
A proper succession review can bring together your shareholder agreement, corporate structure, insurance, estate plan, tax strategy and investment plan — working alongside the lawyers, accountants, insurance professionals and other specialists involved.
Because when the unexpected happens, there won’t be time to fix a plan that was never finished.
THE CDA IS ONLY ONE PIECE OF THE PUZZLE.
In this example, we’ve focused on one relatively technical issue: the Capital Dividend Account.
But the CDA is only one piece of a much larger succession plan.
What Else Should John & Mike Have Planned For?
What happens if John becomes critically ill instead of dying?
What if Mike wants to leave the company?
What if teh shareholders have a dispute?
What if one shareholder triggers a shotgun clause?
What if the business is worth 2X what the agreement says it is?
What if the insurance is insufficient to buy his partners shares?
What if John's estate needs liquidity to pay his terminal taxes?
What if John's daughter wants to inherit the business but his son doesn't?
What if Sarah doesn't want to become a business partner with Mike?
What if the shareholder agreement hasn't been updated in 15 years?
Who actually benefits from the corporation's CDA when John dies?
What happens to the wealth after John exits the business?
THE OTHER SIDE OF SUCCESSION PLANNING
NOT EVERY SUCCESSION
STARTS WITH A PROBLEM.
Some begin with a plan.
When a family-owned business is intentionally being passed to the next generation, business succession planning can be less about reacting to an unexpected event and more about preparing for an opportunity. For business owners in St. Albert, Edmonton and surrounding Alberta communities, an intentional succession plan creates time to consider who should take ownership, how the transition should be structured, and how the business owner’s financial future fits into the plan.
It may also mean addressing what happens to children who aren’t involved in the business, how ownership is transferred, how the business is valued, and how tax, estate planning, financing and wealth management fit into the transition.
The earlier these decisions are made, the more options the family has.
WHEN THE TRANSITION IS INTENTIONAL, THE QUESTIONS CHANGE.
INSTEAD OF –
WHO GETS THE
BUSINESS?
YOU START ASKING –
Who should own the business?
How should ownership transition?
What happens to the children who aren’t involved?
How does the owner’s financial future fit into the plan?
WHO SHOULD TAKE OVER?
Not every child needs to have the same role.
One child may have the experience, interest and ability to run the business. Another may have no desire to be involved at all.
The goal isn’t necessarily equal ownership. It’s creating the right structure for the family, the business and the next generation.
That may mean separating ownership from management, transitioning responsibility gradually, or using other family assets to create an overall outcome that feels fair.
HOW DO WE TREAT THE CHILDREN FAIRLY?
If one child takes over the operating business, the other children don’t necessarily need to receive the same asset.
The broader estate plan can consider investments, real estate, life insurance and other family wealth to create an overall outcome that feels fair.
Fair doesn’t always mean equal. Sometimes the fairest outcome is giving each child something different.
WHEN SHOULD OWNERSHIP CHANGE?
The transition doesn’t have to happen overnight.
A family may choose a phased approach—gradually transferring responsibility, ownership and economic interests while the founder moves toward retirement.
That creates time to test the structure, prepare the next generation and identify issues while there is still time to solve them.
Canadian succession guidance notes that family transitions can take years, and phased exits can help create a smoother handoff. BDC.ca
HOW DOES THE OWNER FUND THEIR NEXT CHAPTER?
The business may be the parent’s largest asset.
So giving it away isn’t necessarily a simple estate-planning decision.
The transition needs to consider:
What does the business need to be worth? What does the owner need to retire? Will the children purchase the shares? Will there be vendor financing? How will taxes be funded? What assets remain outside the business? What happens to the owner’s investment portfolio after the transition?
YOUR NEXT CHAPTER –
THE TRANSITION DOESN'T HAVE TO HAPPEN ALL AT ONCE.
For many business owners, succession isn’t a single event. It’s a process that unfolds over time.
Ownership can transition gradually. Management responsibility can shift before ownership does. The current owner can reduce their involvement while the next generation takes on a greater role.
A phased approach creates time to make the right decisions for the business, the family and the owner’s financial future.
Is the next generation ready?
Do they have the skills, interest and commitment to take on greater responsibility?
Can the business support the transition?
Can the ownership, management and financial structure support a gradual handover?
How will the owner's financial future be funded?
What happens to the wealth and income tied to the business once ownership begins to change?
What happens to everyone else?
How will other children, family members and shareholders be treated fairly?
YOUR BUSINESS DESERVES A PLAN BEFORE IT NEEDS ONE.
Whether you’re considering a family transition, preparing for retirement, reviewing an existing shareholder agreement, or simply trying to understand what happens next, the first step is understanding where you are today.
From there, the right structure can be built around your business, your family and the wealth you’ve spent years creating.
OBJECTIVE
ADVICE
Focused on what's right for your business and family.
COORDINATED
PLANNING
Working with your legal, tax and insurance professionals.
PRACTICAL
STRATEGIES
Built around your goals and real-world business needs.
A LONG-TERM
STRATEGY
Because the decisions you make shape what comes next.