Brought to you by CFIB's Succession Start in collaboration with People Corporation
(Article written by People Corporation)
Most business owners we talk to know they should probably have a shareholder agreement. They just haven't gotten around to it. The business is doing well, the partnership is solid, and honestly, sitting down with a lawyer to plan for worst-case scenarios isn't exactly how anyone wants to spend a Tuesday afternoon. So it gets pushed. Next quarter. Next year. After the busy season.
And then, for some of them, something happens. And suddenly that piece of paper they never got around to signing becomes the most important document in the room — except it doesn't exist.
This isn't hypothetical. It plays out more often than you'd think, and the consequences aren't abstract. Here's what it actually looks like.
Say you and your partner have been running the business together for twelve, fifteen years. No formal agreement, but you trust each other completely — you've built this thing side by side and there's never been a reason to put anything in writing. Then your partner dies, suddenly, and everything changes.
The business doesn't pause. Payroll runs, customers call, suppliers invoice — all of it keeps moving. But your partner's shares? They don't come to you. They flow directly into the estate, which means they now belong to whoever is named in the will. Could be a spouse who has never been involved in the business a day in their life. Could be adult kids with their own ideas about what to do with their inheritance. Could be multiple family members who don't agree with each other, let alone with you.
And here's the part that genuinely surprises people when they're in it: you don't automatically have the right to buy those shares. Without a signed agreement that gives you that right — and funds to actually back it up — you can't force a purchase. You're at the mercy of whoever just inherited a piece of your company.
This is the part nobody really thinks about when they're putting off the agreement conversation. The family may want to sell — but their valuation of the shares might be very different from yours, and without a pre-agreed formula, that becomes a negotiation happening in the middle of a grief period, usually with lawyers involved. Or they might not want to sell at all, and decide they'd like to stay involved in the business their spouse spent thirty years building. Or — and this happens too — they're just not ready to make any decisions yet, and you're left running a company with a co-owner who isn't responding to your calls.
As a shareholder, that family member has rights. They can request to see financial statements. They can vote on major decisions. In some situations, they can block them. The relationship you had with your partner — the shorthand, the trust, the ability to make a quick call together over coffee — none of that transfers.
If it ends up in litigation, which it does more often than people expect, you're looking at legal costs well into the hundreds of thousands. On top of the grief. On top of running the business short a partner.
Separate from the ownership question — and this one catches a lot of people off guard — there's a tax event that happens the moment a Canadian business owner dies. The CRA treats it as though every asset they owned, including their shares in the business, was sold at fair market value the day before they passed. It's called a deemed disposition, and it creates a capital gain on the full accrued value of those shares.
For a business that's grown over ten or fifteen years, that number can be significant. We're often talking six or seven figures in capital gains, depending on the structure and what the company is worth. And unlike selling a house where you at least get cash to pay the bill, shares in a private company don't come with liquidity. The estate has to find the money somewhere — from savings, from debt, sometimes by forcing a sale of the business itself at a time and at a price that suits nobody.
A properly structured agreement, paired with the right life insurance, can fund that obligation cleanly, without the estate scrambling. Without it, a family that's already dealing with a loss is also dealing with a bill they didn't see coming and no obvious way to pay it.
The business owners who don't have agreements in place aren't usually careless people. They're often the opposite — they've built strong, collaborative partnerships on the basis of real trust, and formalizing everything feels, somehow, like it would change the nature of the relationship. We get that. But when a partner dies, you're not dealing with your partner anymore. You're dealing with an estate, and a grieving family, and their lawyer, and the CRA, and none of them have the same relationship with you that your partner did.
Getting an agreement in place isn't about planning for the worst or signalling distrust — it's about making sure that the intentions you and your partner have for each other's families are actually enforceable. That the trust you've built carries through, even when one of you isn't there to honour it personally.
If you're not sure where your agreement stands — or if you know you don't have one and you've been meaning to deal with it — CFIB members can access a free Business Owner Succession Report through People Corporation. It's a short fact-find that looks at your current ownership structure, flags the gaps, and shows you what funding would actually be needed to protect both sides if something happened tomorrow.
Take it to your lawyer, your accountant, or use it as the starting point for a conversation with your partner. There's no obligation — it's just a clear picture of where things actually stand, which, if you've been putting this off, is probably more useful than you'd expect.
This article is for general information purposes and doesn't constitute legal or tax advice. Every situation is different — talk to a qualified advisor before making decisions about your business structure or succession plan.