megram - Index

megram - 55JunOttawa - Index

owner of the business to assess the ability of the child to
provide leadership.
It is important to avoid any conscious or subconscious
gender bias. Focus on the skills and capabilities of the child
and not whether the child is a son or daughter. One of the
keys to having a stronger business and stronger family is to
pass the business to the child who has the best attitude,
practices and procedures to cope with the realities of taking
over the business. It is important to remember that a
chip off the old block is still just a chip.
Some business founders cannot envisage the time
when they will not be in charge and refuse to believe that
anyone can be as qualified as they are. Unfortunately, this is
often true.Faced with the dilemma of choosing a successor
from among several children runs directly counter to the
desire of most parents to treat their children equally and
often stymies the process so that the business owner will
do nothing at all.There are really two choices for the business.
Either the succession of the business will be an event
controlled and planned by the owner with the help and
assistance of third parties (this is the good way) or it will
be an unplanned occurrence brought on by outside forces,
like death or illness (the very bad way).
The idea of what is fair to all family members must be
taken into consideration because some family members
may have no interest or involvement in the business, while
others may be quite active.Giving an ownership interest to
non-active members may affect the future success of the
company and destroy family relationships. Consideration
should be given to equalizing the benefits to all members
of the immediate family by using other family assets, such
as life insurance, cash, real estate or other investments but,
ultimately, it may be unavoidable to treat heirs unequally.
If the owner finally decides that the business must be
sold there may be some invisible problems behind the cor-
June 2008 • 26 • Fifty-Five Plus Magazine
porate veil — usually situations that have been tolerated or
neglected for too long. There may be under-performing
long-service employees.These may be relatives.There may
be some business being done on a cash basis with the
income not being reported.There may be indefensible payments
being made to spouses or children. There may be
employees masquerading as independent contractors.Most
third-party purchasers are going to find out about these
problems through due diligence — but if the business is
going to be taken over by key employees or stakeholders,
some of this information will already be available and may
not present the same problem on closing.
The founding owners need to find something else to do
with their spare time on retirement but need to leave the
company alone.Before they leave they must complete a plan
that describes their own intentions for the management,
ownership, leadership, governance, power and resources of
the firm and the family.A good personal financial plan, coupled
with an estate plan, is a good starting point but these
must complement the management’s continuity and business
growth plans. In short, the owner must let the heirs
know when the train is leaving the station so they can count
on their departure at a specific time and buy tickets.
In the end, someone who has spent their life building
a thriving, important business — which has raised families
and paid for the education of children — must replace this
contribution with another worthwhile task. Otherwise,
they will remain unhappy and unfulfilled. Only when the
owner is satisfied that the family business is competently
addressing the problems facing it can he or she have any
chance of a successful transition.
John Johnson is a partner with the law firm of Nelligan
O’Brien Payne (www.nelligan.ca), with offices in Ottawa,
Kingston, Vankleek Hill and Alexandria.