The Family

David and Margaret have run their very successful business now for 35 years. They have four children: Ruth, Peter, William and Sarah, who range in age from 28 to 34 years old, and who’ve blessed them with ten grandchildren.

Their three youngest kids have been through college, have good careers and live in different parts of the country. Their oldest child, Ruth, has been working with them in the family business since age 20. Ruth and her husband have made many sacrifices when times were tough to keep the business on track. Ruth has worked so hard to build the business that David and Margaret feel she is the obvious successor to run and own the business when they retire or eventually pass on. This decision feels very natural to David and Margaret; what feels less natural and comfortable is how they will divide the business amongst all four children.

Like most successful first generation business owners in Canada, David and Margaret have accumulated substantial wealth in their private corporation – in fact, 85% of their wealth. Their ownership of that wealth comes through ownership of common shares in the corporation that they received when their lawyer and accountant helped them incorporate 30 years ago.

The Challenge

How do first generation business owners divide their business between the children who have rolled up their sleeves and committed to the business, and their children who have chosen other careers to fulfil themselves and other places to live?

• Do David and Margaret give all of the business to Ruth and very little to the other kids?
• Do they give Ruth 51% ownership and control and give 49% equally amongst the other children? If so, can the children work together as shareholders to keep the business growing and still maintain harmony in the family?
• Would it be possible for Ruth to buy the shares from David and Margaret or her siblings? The financial burden of such an arrangement could cripple the profitability of the business.

And: all of these options could trigger huge amounts of capital gains and tax and dividend tax.

The Strategy

By taking the time to sit down in a series of planning meetings with Ruth and her siblings, accountants, lawyers and bankers, we have been able to develop a strong, long-term plan for Ruth to own the company. Peter, William and Sarah will share fairly in the value of the business and taxes and financing costs will be minimized.

Most importantly, family harmony will remain strong – and so will the family business.

If you would like to learn more about this strategy, feel free to contact us.