Business Exit, Succession & Windup

Sell or pass on your business after years of planning.

Why this matters

For most of this book, we’ve dealt with recurring events, things that happen every year, like a tax return or a year-end. The exit is different. For most owners it happens once. There is no practice run, no chance to apply this year’s lesson next year: you get one attempt at the transaction that may matter most to your finances.

The numbers are what make it matter so much. A business that paid its owner a comfortable living for thirty years may be worth, on the day it sells, more than all of those years of salary combined.

Your simple checklist

• Do you understand the share-versus-asset choice and what it means for you?
• Is there a real succession plan (a trained successor, an agreement) or just a hope?
• Have you planned what the proceeds will become: your retirement, your legacy?
• Have you faced the emotional side (letting go, fairness, family) alongside the numbers?
• Have you modelled the minimum tax and your income after the sale before you sign?
• If family is the plan, will the handover meet the conditions: control given up, management handed over, a joint election filed?
• If there is no family successor, have you compared a sale to an outsider, a sale to your employees through a special trust, and a wind-down?
• Have you lined up what comes next, so stepping away is stepping toward something?

Questions to bring to your Discovery Meeting

• Would claiming the LCGE on a sale leave me owing alternative minimum tax (AMT) that year, and how would I recover it later?
• If I sell shares I own personally, not through a trust, to a company controlled by my child, would the sale meet the conditions for an intergenerational business transfer rather than being taxed as a dividend, and how should shares held by our family trust or by other relatives be planned for?
• Should this be a share sale or an asset sale, and what would each leave me after tax, given that a share sale can let me claim the LCGE on qualified small business corporation (QSBC) shares?
• If no family member will take over, would a sale to an employee ownership trust (EOT) fit my business, and do the company and I meet its conditions?
• If part of the price is paid over time, can I claim a capital gains reserve, and would the longer reserve for a sale to my child apply?
• If I wind up my company instead of selling, how will the remaining surplus come out, including any capital dividend account (CDA) and refundable dividend tax on hand (RDTOH)?
• If I have co-owners, does our shareholders’ agreement include a buy-sell agreement for death and disability, and is it funded with insurance?
• Does the company need key person insurance, and if it owns a life insurance policy, how much of the proceeds would be added to the capital dividend account (CDA) and paid out to my family as a tax-free capital dividend?

Farm families: The Farm Tax Bible is a free download on what happens to land, equipment and the farm corporation when it changes hands.