Many family owned/operated businesses are started with the hopes that one day it will be handed down to the future generation. When it comes time to retire you may be looking at handing the business reins over to the kids but you still want to get your investment out of it by way of shares. If so, then you will need to undertake an estate freeze.
There are some good tax advantages to this for you personally. You will receive your shares as to what the current value of the business is. Your share value can be locked in. This means that your obligations to the tax department in future years regarding these because the share value is fixed will decrease. You have to realize though that at the time you are freezing this value you are not actually receiving any actual money from these shares at the present time.
What happens going forward is that any growth the Company receives concerning its value will not affect you as the shareholder.
It is critically important that a proper estate freeze strategy is put into place and is properly executed. One of the concerns that can often arise is that your shares can end up losing the value that was set for them when you transferred over the business.
An estate freeze is just one type of strategy that can be used to transfer your business over to your kids. It really is worth checking out your options carefully and considering all the potential risks as well as benefits.
Sometimes business owners get so caught up in trying to pay as little as possible to the tax department in all areas of concern for their business they end up making huge financial mistakes that far outweigh the tax implications.
Once you have made the decision that it’s time to pass on the family business it is a wise undertaking to discuss this with a quality accountant. This professional may direct you to other professionals and experts that specialize in the transference of a business. This may include the services of a business appraiser. This expert can be instrumental in determining the true value of the shares at the current time.
There are many other considerations besides the money value of the Company that has to be considered when handing down the business. It may affect your voting rights and the actual control that you have over the business. It is a serious decision that you are making, and you want to make sure you are making the best decisions that will definitely affect you on a business level as well as personal, as well as the relatives to which you are passing down the business to.
