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LEGAL

PROTECT YOUR BUSINESS FOR FUTURE GENERATIONS B y K r i s t i C o ll i ns

C

ongratulations! You have built your family business into a great success! In a time

when big box businesses reign supreme, this is no easy feat. You have invested all of your energy, time and money into making your business what it is today. Your family has been with you through the highs and lows, and you want them to share in your success. The last thing you want is for your legacy to fall apart and cause family strife in your final “golden” years or after death. As estate litigators, we see first-hand how family businesses can fall into litigation during periods of succession. The following are some issues to consider now to help keep your family business out of estate litigation in the future: Start planning early. Smoothly transitioning your business from one generation to the next takes time and careful planning. You should begin considering your succession plan in conjunction with your estate plan at least five years before your planned retirement. Consider also a contingency plan in the event you are forced to retire sooner than you thought. What would happen to day-today operations if you were suddenly unable to participate? Who would make the decisions? Does the business have mechanisms in place to quickly introduce new leadership, if required? A sudden void in leadership due to illness or other unforeseen circumstances can often leave a business on shaky ground. Likewise, unforeseen incapacity may preclude you from later changing your will, leaving the future of the business and the estate in confusion and conflict. Be realistic about your family and your business. Are your children involved in the business? Do they work well together? Do they want to continue in the business long-term? Is one more involved than the others? Do you have non-family business partners to consider? Are there existing personal dynamics which complicate your business and/or estate planning, such as divorce/remarriage or family in-fighting? Does the business have long-term viability or can you already foresee a decline in market presence? If there is no clear path for handing down a successful business and you anticipate trouble, consider whether selling the business during your lifetime and dividing the proceeds in your will is the more realistic approach to maximizing value and peace of mind for your family. Consider your priorities. What is best for your company’s future may not be what is “fair” or “equal” among your heirs. Indeed, what is equal is not always fair. Equally dividing management

or ownership of a company may cause difficulties in decision-making down the line. Moreover, one or two of your heirs may invest more time and effort into the success of the business, in which case it may be more fair for them to hold more of an ownership stake. You could leave management with one and divide ownership – the use of non-voting shares, for example, is a useful way to split ownership but not decision-making. Still, you should be aware that disgruntled shareholders have various legal remedies to challenge directors which could ultimately overcome your intended plan. While succession planning, you may wish to revisit your company’s articles, bylaws and shareholders agreement(s) to address your specific concerns. Comprehensively discuss your considerations with your advisors and periodically revisit your plan. The more information about your business, your priorities and your assumptions for the future that you share with your financial and legal advisors, the better able they will be to craft a solution that’s right for your family and business. Multiple wills, estate freezes, trusts, non-voting shares and various other provisions within shareholder agreements are all legal tools that can be used to plan your estate and minimize the likelihood of a future legal challenge. They can also be the source of litigation if they are used inappropriately or based on mistaken assumptions. As your circumstances change (such as market changes, divorce or death of a partner or relative), revisit and revise your plan as necessary to ensure it continues to represent your intentions. Talk to your family about your plans. Even a carefully thought out estate plan may cause conflict in your family or business. By not discussing it with your family, you only delay the inevitable and eliminate your important role in resolving the matter. Directly explaining your intentions and rationale for your estate plan will go a long way in preventing misunderstandings, resentment and hurt feelings down the road, which, after all, are at the foundation of most estate litigation. BL Kristi Collins is an Associate in Lancaster, Brooks & Welch’s Litigation law team. She handles a variety of civil litigation matters including estate litigation, complex corporate and commercial litigation, bankruptcy and insolvency law. She may be contacted for a consult at 905.641.1551.

Kristi Collins We are Niagara’s Lawyers since 1882. Kristi is an Associate in our litigation law team. She handles a variety of civil litigation matters, including complex corporate and commercial litigation, bankruptcy and insolvency law, and estates litigation.

800 - 80 King Street, St. Catharines, ON L2R 6Z1 | 905.641.1551 | TF: 1.866-835-3934 | www.lbwlawyers.com 18

BUSINESS LINK NIAGARA | JUNE 2018

Business Link Niagara ~ June 2018  

The Business Link is a monthly business-to-business direct mail publication designed to help company owners and business professionals grow...

Business Link Niagara ~ June 2018  

The Business Link is a monthly business-to-business direct mail publication designed to help company owners and business professionals grow...