Winding Down A Business

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There are 2 prominent initiatives driving consideration of winding down a corporation:

1. First, retirement/capitalization on investment; sale to third party; or
2. While still operating, a desire to reduce complexity and possibly to merge holding companies with operating companies to result in fewer tax filings and simplification of administration.

These types of initiatives frequently arise from family maturation, change in business plans or maybe even declining business.

But regardless, many enterprises have complex structures of “tiered” corporations frequently determined by estate planning or for the purpose of segregating potential liability. The relevance of these related corporations should be seriously considered before the desire to simplify prevails over better business structure planning.

It’s natural to think of simply “shutting down”. Simple as that may seem, that will not stop government filing requirements, costs to complete tax returns and continual notices from various levels of government, sometimes rather costly as the result of the failure to file.

So we’ve counseled clients to consider amalgamations between and among holding companies and operating entities to result in just one corporation and therefore just one set of filings. Continuing a corporate existence to take advantage of corporate tax rates/income splitting and banking relationships should be considered. It is not infrequent that corporate structures have been established in a multitude of jurisdictions necessitating the bringing of a corporation from one jurisdiction (say, for example, the federal jurisdiction) into the jurisdiction of another company (say, an Ontario company).

One must also assess the effect of an amalgamation relating to liabilities. Remember that whatever were the assets and liabilities of each pre-amalgamation corporation automatically become the assets and liabilities of the post-amalgamated corporation.

There are admittedly certain savings and tax benefits, but at the same time before simply proceeding, serious consideration should also be given to the liability component of the effect of amalgamation.
We’d be pleased to assist you in your consideration.

Family Business and The Art of Letting Go

Family Business Welsh LawElsewhere on this website you’ve seen articles relative to the succession issues of a family business.

Recently (Thursday, October 11, 2012), the Toronto Star featured an article addressing small businesses. The caption was “The Art of Letting Go”. The article reported that the Bank of Montreal, in a recent study, found 37% of small business owners having some form of a succession plan, up from just 15% just 2 years ago.

Essentially, there seem to be 3 alternatives: selling the business to a family member; selling to employees of the business; or potentially selling to third parties, whether competitors or an investor.

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Family Business Succession Planning

Welsh Law Family Business Succession PlanningThe majority of all businesses in Canada are family owned.  Yet, surprisingly, according to the Canadian Association of Family Enterprises, 70% of family businesses do not make it to the 2nd generation and an astonishing 90% do not make it to the 3rd generation.

The largest asset of most families is their business and an appropriate succession plan to preserve that asset is self-evident.

Family business succession planning is not restricted to the preparation of Wills or Powers of Attorney.  On the contrary, while those are part of the process to successfully transfer a family business, a much more significant issue is the identification of the appropriate Senior Management to perpetuate the family business.

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