Do you own a business? Do you own shares in a corporation? There are a number of important considerations which arise when you hold shares in a company including legal, tax and financial considerations. This column is intended as an overview of some of these considerations in the context of your estate planning, but is by no means exhaustive.
Estate freeze
One tool available to a shareholder in the estate planning process is called an “estate freeze.” This is a fairly complicated process involving extensive accounting and legal advice, depending on the specifics of each situation.
Succession planning
Another issue that often arises in the course of considering a shareholder’s estate plan is the question of who will take over the operation of the business once the shareholder passes away.
Succession planning is a very important aspect of an estate plan. There are a number of ways of arranging the transfer of shares to meet the testator’s wishes. In some cases, the testator will have a child or other family member who will be taking over the business. In others, the testator will want the company to be sold and the proceeds from the sale to be available for distribution to the beneficiaries.
Specific matters that need to be considered is who the voting shares in the company will be transferred to (as they will be entitled to vote on the composition of the board of directors to run the company) as well as when the testator wants their chosen successor (if there is one) to receive the shares in the company.
In many cases, a Shareholders’ Agreement for the company in which the testator holds shares may impact the transfer of the testator’s shares on their death. The Shareholders’ Agreement and the articles of the company should be reviewed carefully in the course of establishing the estate plan.