For many business owners, succession planning is viewed as something to address “later.” It is often linked to retirement, a company sale or the passing of the reins to the next generation. However, succession planning should begin the moment you build something of value. While many business owners associate succession with retirement, death is the most common trigger for a transition.
For that reason, planning should begin well before most anticipate. Whether you intend it or not, your business already forms part of your estate. If you pass away without a clear plan, the law, not your intentions, will determine what happens next.
From an estate-planning perspective, this article highlights the importance of treating a business as a core estate asset and planning for its transition upon death. It focuses on the need for early succession planning, the role of business restructuring in facilitating an orderly transfer to beneficiaries and the importance of aligning corporate structures and documentation with estate-planning documents, including wills and shareholder agreements.
What happens when a business owner dies
When a business owner dies, several things can happen immediately. Their shares in the business become part of their estate, control of the business may become uncertain and family members may suddenly inherit control as co-owners under the Intestate Succession Act, 2019, if the deceased had no will or if the will did not specify the distribution of the business. Executors are responsible for managing the estate, including ensuring that business operations continue, often under significant pressure. Without prior planning, this can result in operational paralysis, family conflict or even the forced sale of the business.
Your business does not pause when you pass away. If something unexpected happens to you, such as an illness, incapacity or sudden death, your business does not get a grace period. Decisions still need to be made, contracts still need to be fulfilled, employees still need leadership and clients still expect continuity and completion of services.
While many business owners associate succession with retirement, death is the most common trigger for a transition.
Without a clear succession plan, your family may inherit a business they don’t know how to run, your partners could be pushed into disputes with your estate, your employees might face uncertainty or even job loss and the value of your business, which you worked so hard to build, can decline rapidly. This is why it is essential to properly organize and structure your business, including filing all necessary corporate documents and formalizing agreements in writing rather than relying on oral arrangements.
In O’Brien v. O’Brien Estate, 1998 CanLII 12397, the Saskatchewan Court of Appeal held that informal agreements relating to business ownership did not bind the estate because they were not properly structured as corporate documents. After the owner’s death, his widow refused to honour the informal arrangements, resulting in lengthy and costly litigation – the very outcome that effective succession planning is meant to prevent.
Saskatchewan’s legal framework for business succession
In Saskatchewan, business succession upon death is governed by a combination of estate statutes, corporate law and common law principles. The Intestate Succession Act outlines how property, including business interests, is distributed if the owner dies without a will, while the Wills Act ensures that testamentary intentions are properly executed.
It is never too early to start. If your business has value today, then it belongs in your estate plan.
On the corporate side, the Business Corporations Act requires accurate corporate documentation, including governance rules and agreements, to clarify ownership, control and the transfer of business interests. At the same time, the enforceability of business arrangements, particularly informal agreements, relies on common-law contract principles, underscoring the importance of aligning written agreements with corporate and estate documents.
Practical solutions
Effective business succession planning does not occur at death or retirement; it requires early, deliberate planning. Treating a business as a core estate asset ensures that legal, corporate and estate structures work together seamlessly.
1. Early planning
Succession planning should start long before a triggering event happens. Death or serious illness often occur unexpectedly. Without proper advance planning, ownership and control of a business can become uncertain overnight. Early planning helps business owners clearly decide who will own, control and benefit from the business after death, reducing the risk of disruption, delays or disputes among family members. These wishes can then be shared with relevant parties in a smoother, more collaborative way.
2. Written business arrangements aligned with wills
Oral or informal arrangements rarely survive death. Properly documented written business arrangements are essential for clearly establishing ownership, control, transfer of interests and responsibilities within a business. Informal family agreements, even with close relatives who are not formal shareholders, may not be enforceable after death. As seen in O’Brien v. O’Brien Estate, informal arrangements can lead to disputes and unintended consequences.
Aligning written business arrangements with a business owner’s will and estate planning documentation ensures that testamentary intentions are enforceable and consistent with corporate documentation. This reduces the risk of future conflicts or operational complications.
3. Share restructuring where appropriate
In some cases, restructuring share classes and shareholder agreements can help separate control from economic benefits, enabling a business owner to retain control during their lifetime while facilitating an orderly transition to family members or business partners upon their death. Share restructuring can also clarify dividend entitlements, future growth and access to potential tax relief mechanisms, ensuring that succession goals are reflected in the company’s capital structure.
4. Alignment between corporate and estate documents
Perhaps most importantly, all corporate and estate planning documents must be aligned. Wills, shareholder agreements, and governance documents should tell the same story. When these documents are inconsistent, executors and beneficiaries face uncertainty, increasing the risk of conflict and unintended consequences, and draining the hard-earned value of your company. Alignment ensures that the owner’s succession plan is both legally effective and practically feasible.
5. Consideration of tax implications
Upon death, certain tax consequences may be triggered, including potential tax from the deemed disposition of business interests. Given the potential significance of these implications, advanced tax planning is important.
Conclusion
Most business owners do not plan to exit unexpectedly. But many do. The difference between continuity and disruption often comes down to decisions made years earlier – or not made at all. Without a clear plan, ownership, control and value can unravel quickly under pressure. Succession planning is ultimately about protecting what you have built. The earlier that work begins, the more likely it is to hold when it matters most.
Disclaimer: This publication is provided as an information service and may include items reported from other sources. Procido LLP does not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP at procido.com if you require legal advice on the topics discussed in this article.
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