For every privately held corporation, one of the most difficult,
yet unavoidable decisions, will be implementing an exit strategy.
In a recent five-part series titled
Realizing shareholder value: Private company exit strategies,
PwC identifies and explores the principal stages of developing a
successful exit strategy: (1) making the decision to sell; (2)
finding the right buyer; (3) preparing the business for sale; (4)
the deal process; and (5) preparing for life after the deal.
Making the decision to
sell. Every ownership group can have different reasons to
plan an exit, be it retirement, financial pressures or the desire
to transfer the business to an heir. Whatever the motivation,
defining objectives of the sale are key to developing the right
strategy. Is liquidity more important than succession planning? Are
you more concerned with the sale price or the future of current
employees? Once these objectives are determined, the transaction
can be structured to achieve your goals. Regardless of your
objectives, the planning needs to start early so that all the
relevant stakeholders are considered.
Finding the right
buyer. To find the right buyer, you need to decide how to
structure the transaction to achieve your goals. This can be done
through a (1) sale to a third party; (2) corporate partnership or
joint venture; (3) employee stock ownership plan; (4) an IPO; or
(5) selling to family. Each of these methods has advantages and
disadvantages that may or may not align with your strategy. As
previously stated, knowing what you want to achieve in the sale
will make this decision easier.
Preparing the business for
sale. Early preparation is important at this stage.
Continuing to run the business successfully and negotiating a sale
can be difficult and there is a potential that competing interests
can arise. Ensuring that the financial and human resources are not
depleted throughout this period will create value for both the
seller and the purchaser. Creating a dedicated internal team with
strong external advisors will alleviate some of the pressures.
The deal process.
Before committing to a sale, it is advisable to consider: (1) if
your objectives are still being met; and (2) whether market
conditions have changed substantially. As long as these two issues
are still manageable, issues concerning taxes, timeline of the
sale, confidentiality agreements and negotiating key terms will be
paramount. The services of an experienced legal professional cannot
be understated at this stage.
Preparing for life after the
deal. Upon a successful closing, the issues that need to
be addressed will be of a more personal nature. Personal income tax
planning, financial planning, family issues, wealth transfer
planning and planning for retirement will need to be faced head on.
These issues can be dealt with by reassessing your objectives from
a personal perspective and moving forward. Once these objectives
are realized, future planning becomes manageable and
Planning an exit can seem daunting at the beginning because it
is something that business owners typically will only do once in
their careers. With proper planning, a strong team of advisors and
an appreciation of the stages and issues that will be faced along
the way, a successful exit strategy is within reach.
The author would like to thank Robert Corbeil, summer
student, for his assistance in preparing this legal
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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