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Head Off Disputes and Save Tax with Shareholders’ Agreements

Head Off Disputes with Shareholders’ Agreements

New webinar provides tax planning tips for creating a shareholders’ agreement

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Co-owning a small business with a partner is a recipe for success for many entrepreneurs. Each partners' different skills and experience can come together to make a stronger business than either of them would have separately.

With all the demands on their attention, busy entrepreneurs can easily overlook important long-term planning, such as creating a shareholders' agreement. These agreements can ensure that shareholders' rights and obligations are clearly understood and can protect the company's future in case something goes wrong. Of course, it's vital that these agreements achieve their business objectives but it's also important to carefully consider their tax consequences.

A shareholders' agreement sets ground rules for important issues such as who can own shares of the business. For example, is ownership restricted to the partners and their family members or will key employees be able to own shares as well? And how will the shares be valued if they're transferred among the owners?

These agreements also deal with more difficult issues, such as what will happen in case of a future disagreement or death or disability of one of the key shareholders, usually by specifying a process for one side to buy out the other and how the buy-out will be funded. Business partners may be reluctant to bring up some of these issues.

Co-owners who are considering the options for a shareholders' agreement, should keep in mind that the tax implications of their choices can be significant. For example, they'll need to consider what will happen to a shareholder's shares on his or her death. In addition, if a company's shares qualify for the lifetime capital gains exemption ($866,912 in 2019), co-owners may want to structure their shareholders' agreement so the party selling the shares can claim the exemption.

To help you understand the tax consequences of shareholders' agreements, KPMG presents "Shareholder Agreements - What are the Tax Implications for a Private Business?", the latest webinar in KPMG's Enterprise Tax on Demand series. Other upcoming short and specific Enterprise Tax on Demand webinars will focus on other important tax-related areas of your business.

To learn more about how proper planning can help when considering shareholders' agreements, please contact Dino Infanti or visit our website KPMG private company tax.

Information is current to August 6, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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