Business Succession and Buy-Sell

Taking Over the Family Business: What Parents and Adult Children Need to Agree On

Everyone says the business will stay in the family. Here is what parents and adult children need to agree on before that promise is tested.

By Sami Majdalani, M.A. (Econ.), LLQP · Eagle Wealth Partners · 4 min read

Your daughter runs the team. Your son handles the customers. You still approve every major decision.

Everyone says the business will stay in the family. Nobody has agreed on what happens next.

A family business transition can stall in this middle ground: the next generation has responsibility, the founder retains authority and the financial arrangements remain unfinished.

For Ontario business families, a useful succession conversation starts by making those expectations visible.

The short answer

Separate management, ownership and control, and agree who holds each today and who will hold it next. Make sure the founder’s retirement income is funded. Decide how children outside the business will be treated, plan for illness on either side, and know who will pay the tax when the shares change hands.

Agree on what taking over means

Consider an illustrative founder who has spent 30 years building a company. His adult daughter has worked beside him for a decade and expects to lead it. He wants to slow down, but still depends on the business for income and worries about stepping away.

Both intentions are understandable. Without a clear agreement, routine decisions can become personal disputes.

Separate the discussion into management, ownership and control. Who runs daily operations? Who owns the shares? Who can approve major commitments? These roles need to be understood before the transition advances.

Give the founder a financial reason to feel secure

Letting go is difficult when the parent does not know how their retirement will be funded.

Discuss the income they need, what the business can realistically support and which resources exist outside it. Consider how a downturn or an interruption to the successor’s work could affect that arrangement.

The next generation also needs to understand what commitments it is accepting. A transition becomes harder to sustain when the same business is expected to fund expansion, the founder’s retirement and substantial payments to siblings without a clear funding plan.

Discuss the children who work elsewhere

A sibling outside the company may expect to share in its value. The child inside may expect their years of work to be recognized.

Start those conversations before promises become fixed positions.

Discuss compensation for work, participation in ownership, decision-making rights and how the broader estate might treat children with different roles. Make the reasoning clear. Parents should not leave their children to reconstruct it during a crisis.

The appropriate outcome will depend on the family, the business and advice from its legal and tax professionals.

What if the founder or successor cannot work?

Succession planning also needs to account for someone being alive but unable to work.

What happens if the incoming owner needs six months away? Who can lead the team? Would their household income fall? Could the business continue meeting its obligations to the retiring parent?

Disability insurance and critical illness insurance may form part of the protection discussion, depending on existing coverage, eligibility and policy terms. The business may also need a separate review of key-person, overhead or agreement-funding needs.

An operational backup plan and a funding plan should be developed together. Identify the obligations first, then assess which resources could support them.

Who pays the tax when the shares change hands?

Whether the shares pass through a sale, an estate freeze or the founder’s death, the transfer can trigger tax on the growth in their value.

$1.07 million

Potential capital gains tax at death on shares worth $4 million with a nominal original cost, at 2026 top Ontario rates. If the shares qualify for the lifetime capital gains exemption, part of the gain may be sheltered.

The family should know who would pay that bill, and from which resources, well before it arrives. An estate freeze can lock in the founder’s tax at today’s value and pass future growth to the next generation. The accountant can explain how the timing and method of the transfer change the result.

Bring the advisers into one conversation

The lawyer, accountant and insurance adviser should work from a shared understanding of the family’s goals.

Legal agreements need to reflect the intended roles. Tax planning needs to account for the proposed transaction. Funding arrangements need to support the obligations created. Avoid treating a completed document as proof that the entire transition is ready.

A phased approach may help the founder step back while the successor develops greater authority. Set responsibilities, milestones and review dates rather than relying on “someday.”

Three questions for the family table

What authority does the next generation have today, and what changes next?

How will the parent’s income and the siblings’ expectations be addressed?

If either generation could not work tomorrow, what would keep the transition on track?

Frequently asked questions

How do you start a family business succession conversation?

Separate three topics: who runs daily operations, who owns the shares and who approves major decisions. Agree where each stands today and what changes next, then bring the lawyer, accountant and insurance adviser into one conversation.

Is there tax when a parent passes a business to a child in Ontario?

Usually, yes. Whether the shares pass through a sale, an estate freeze or death, the transfer can trigger capital gains tax on the growth in value. At 2026 top Ontario rates, about 26.8% of the gain can be payable, unless part is sheltered by the lifetime capital gains exemption or deferred through planning.

How should parents treat children who do not work in the business?

There is no single fair answer. Discuss compensation for work, share ownership, decision-making rights and how the rest of the estate will balance things. Explain the reasoning while the parents can still do so.

What happens to a succession plan if the successor becomes ill?

The business may lose its leader and the founder may lose the income the plan depends on. Disability, critical illness and key-person coverage can form part of the review, alongside an operational backup plan.

A succession plan is only as strong as its funding.

At Eagle Wealth Partners, I help Ontario business families identify financial exposure and funding gaps around succession, in coordination with their legal and accounting advisers. Let’s discuss whether your transition is financially prepared.

Important information

This article is for general information only and does not constitute personalized financial, investment, legal or tax advice. Before making changes to your estate plan, asset ownership or beneficiary designations, consult your lawyer, accountant and appropriately licensed financial or insurance advisor. The right approach depends on your circumstances and the laws and tax rules in effect at the time.