Trusts are a tax option with numerous benefits to plan the transfer of assets to family successors.
A business transfer is a process that should be initiated several years in advance and generally includes the transfer, first, of knowledge, then power then equity.
Benefits of a trust
Using a trust can be an interesting alternative from a legal perspective. Because equity is separated, it provides better protection. The trust terms include instructions for replacing trustees and identifying the beneficiaries, which is not the case with a company’s shareholders.
When using a trust in a business transfer to family successors, the owner-manager can transfer future value to the children without having to immediately determine how and to whom shares will be attributed.
A trust can be useful if the shareholder is ready to transfer the future appreciation in value to his or her children who are too young to have an interest in managing the business. It can also be a good option if the children aren’t sure yet about whether they want to take over the family business.
Looking at the options
If an owner-manager plans to withdraw from the business and his or her child will be taking over its operation, there are two options:
- The family trust allocates common shares to the child and there are no tax consequences on the transfer;
- The business exchanges common shares held in the family trust for non-participating shares and the child subscribes for the business’s new common shares.
There are a number of prerequisites to setting up a family trust in an organizational structure, which include:
- Analyzing the current organizational structure;
- Evaluating the shares of the company where the trust will be integrated;
- Setting up the trust;
- Preparing any tax forms required;
- Reviewing the various legal documents.
Our team of tax specialists can advise you on setting up a trust as part of the transfer of a business to family successors. Contact us today for personalized support in this initiative.
15 Mar 2018 | Written by :
Christian Filteau is a partner at Raymond Chabot Grant Thornton. He is your expert in taxation for...
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It’s your business—you’ve invested time and energy, but has the time come to consider selling or transferring it? Here’s some advice for a successful transition.
Experts agree that it takes an average of seven years to complete a successful transfer. Only about one third of the 100,000 businesses that will be carrying out a transfer in the next ten years will do so successfully. About 91% of entrepreneurs do not have a succession plan. Is this your situation?
You need to surround yourself with the right professionals for this process. One benefit is that they can make keep discussions on track and foster a smooth transition. It’s also important to keep in mind that this transfer may take place gradually, over several years.
Cover all the bases
Make sure you have all of the experts you need for a successful transfer. There are numerous facets to an organizational change of this magnitude: human, financial, tax and legal, among others.
Work with experienced advisors
Call on advisors with business transfer experience who can see the big picture, because the success of this process depends on how well the advisors can work together as a team.
Reflect your business’s situation
Choose one person from the group that you trust, who knows your business’s situation and understands the related human and interpersonal issues. This person can act as the “integrator” with an overall view of your needs and objectives. That person’s role will be to identify your needs and call on the right resources at the right time.
Have an objective observer
Encourage neutrality. The professionals must be capable of giving you an objective opinion. To ensure the business’s longevity, they should consider the needs of the transferor and transferee in the process. This may include, for example, doubt about the transferees’ abilities, questions about everyone’s future role, the business’s value.
Generally, the following experts are involved in a successful transfer:
- specialists in business transfers, strategic planning and human resource management;
- an account manager,
- a financial planner or development capital investor,
- a business valuation specialist,
- a tax specialist,
- a lawyer,
- an accountant,
- a notary
- a communication management consultant and family mediator and,
in some cases, an industrial psychologist.
By surrounding yourself with the right experts, you’ll be well positioned to ensure a successful business transfer!
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Times change and so do citizens’ needs. It is essential for municipalities to reflect this as they plan infrastructures, equipment and the sport, leisure and culture services offered.
During the 60s, 70s and 80s, this was a relatively easy exercise, for many reasons:
- Demographic forecasts were growing;
- Clienteles were uniform;
- Citizens needed few activities;
- The services were provided almost exclusively by the municipality.
It’s clear that this same exercise now requires municipal leaders to have more skills and abilities than in the past.
In the past 20 years of our sports, leisure and culture practice, we’ve identified seven complex, challenging planning issues.
Clienteles are varied
They are in all age groups, come from various cultural backgrounds, have different ways of life and use services differently. This new information must be properly understood to identify innovative municipal strategies.
Competition is increasing
More and more businesses and organizations provide leisure equipment and services, sometimes placing the municipality in a competitive situation. This situation should be transformed into an opportunity to enter into partnerships. While some municipalities have already opted for this model, in the coming years, it will become more common and essential. To give just two examples, consider the need to coordinate with other government bodies regarding community and sports equipment in schools and the cultural equipment financed by the Ministère de la Culture.
Trends are evolving rapidly
Citizens’ leisure tastes and interests can change at the speed of light, which means that a municipality’s investment choices can quickly become obsolete. When making development and management choices, municipalities must ensure that their infrastructure and equipment will stand the test of time and not become costly and obsolete. They sometimes need to make difficult choices that consider citizens’ concerns and the social and political context.
Managing finances must be equitable
In the coming years, there will be increased pressure on ensuring financing equity between activities and organizations. In the past few decades, municipalities made choices to support activities and organizations (directly or indirectly, by financing infrastructures). With the sometimes explosive growth in the number of sports, leisure and cultural organizations and activities, municipal authorities need relevant, powerful analysis and decision-making tools. Unlike Issue on partnerships, where municipalities have made some inroads, there is still much work to do to ensure the fair and strategic management of municipal financing for sports, leisure and cultural organizations and activities, for example, events and festivals.
The environment is taking on greater importance
It is increasingly important to consider climate and technology issues. Some of the infrastructure and development planning challenges include outdoor skating rinks, air conditioning in schools (gyms and common areas, etc.), parks, green spaces and public spaces (shaded areas), etc. In terms of technology issues, there is a distinction to be made between improving management tools and service-related tools (for example, the library of the future). Technological progress will help managers improve client services and support the development of true scorecards and performance indicators (in line with Issue on financing).
Citizens are becoming increasingly involved
Over the years, citizens have become increasingly involved in the planning process. However, they no longer limit their involvement to surveys or meetings with organizations, they want to be part of the analysis and determination of strategic directions. They even want to take part in the equipment concept and design (co-creation). Municipal managers therefore need to master new planning skills and abilities.
The increase in tools requires extensive coordination
The extent of sports, leisure and cultural planning tools available to municipal mangers is expanding: policies (family, cultural, healthy life style, etc.), master plans (parks, green spaces, sports or cultural equipment, etc.), segment strategies (elite sports, technological or climate adaptations, public health, youth, etc.). While these tools are essential for a structured planning process, they should be fully integrated with each other and very often, we find that this is not the case.
The financial and political importance of properly managing municipal sports, leisure and cultural events requires municipal decision makers to find new ways of planning infrastructures and the service offering.
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Selling your business is a big decision, one that should be well planned, often years in advance. In many situations, it may be to your advantage to maximize its value.
Several internal and external considerations come into play. While it may not be possible to impact external factors (such as the competition or government regulations), the same is not true for internal ones.
To increase your business’s value and maximize its selling price in a potential transaction, we recommend the following.
1. Sales growth
Investors will find a developing business more interesting than one in decline. If you can show sustained sales growth, it’s more likely that a potential buyer will be prepared to pay a higher price.
2. Earnings quality
This is vital. How can you expect someone to be interested in buying a business with astronomical sales and no profits? For a shareholder or business owner, earnings (or cash flows) are the return on invested capital. The higher they are, the greater the value.
3. Human resource stability and quality
A buyer will find an organization with a well-structured work force more attractive (regular employee turnover, well-trained employees, low occupational accident rate, etc.).
4. Brand image
This includes the reputation of the business’s products and services on the market as well as the quality of its marketing process.
5. Contracts
The existence of exclusivity contacts, procurement agreements, advantageous leases, franchises or patents can set the business apart from its competitors, providing added value.
6. Sound financial situation
Is the debt level appropriate? How does its working capital compare to the industry? The better the ratios, in comparison with other industry sector businesses, the better its chances of a higher sale price.
7. Client variety and loyalty
It is generally acknowledged that 20% of clients generate 80% of revenues. While a diversified clientele is important, it’s also important to instill client confidence and encourage loyalty by being attentive to their needs.
8. State and value of tangible assets
Consider the business’s capital assets (land, building, state-of-the-art equipment, etc.).
9. Growth potential
This could be unused production capacity that a potential buyer could use to increase sales and earnings.
10. Market niche
A business in a market with attractive growth perspectives is more appealing to a buyer, it should be innovative and always stay ahead of the competition.
We can help you plan your business’s sale and maximize your sale price. Our firm has experts and contacts in all areas of management, particularly tax, business valuation, human resources and financial advisory.
Don’t hesitate to contact us if you have business valuation questions or requirements.
01 Mar 2018 | Written by :
Donald Savard is an assurance expert at Raymond Chabot Grant Thornton. Contact him today for good...
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