An owner rarely picks an exit route in the abstract. What decides it, in practice, is three separate answers arriving at different times: whether a child is both willing and ready, whether the management team can raise the money, and what a stranger would actually pay. None of these has to be answered first — but each closes off a different set of tools once it is.
Key takeaways
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Treadstone Law's answer on this question is that treating a stranger sale and a family succession as an immediate either-or is usually the wrong way to approach it: you can explore both in parallel, keep the family conversation honest, and let the numbers from a real outside process inform what the family transfer actually has to compete with. See the order a family transfer actually happens in for which steps that parallel exploration still has to get right early.
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A family transfer is not simply a sale with a different buyer. Where the shares go to a corporation the child controls, ITA section 84.1 treats the proceeds as a dividend rather than a capital gain unless the transaction meets the conditions in the intergenerational business transfer rules — see selling to your child's company without the CRA calling it a dividend. A stranger sale never has to clear that hurdle, because the parties already deal at arm’s length. Readiness is not only financial: a business that runs on the owner personally is a harder handover regardless of who is receiving it.
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A management buyout starts as a financing problem, not a governance one. Whether your managers can afford to buy you out and funding a buyout the managers cannot finance alone cover why the team’s own capital rarely closes the gap on its own, and vendor financing in a management buyout covers the most common way an owner bridges it — financing extended to people the seller already knows, which cuts both ways.
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An employee ownership trust lets an owner sell to the whole workforce rather than to a child or a management team specifically, and it carries its own federal tax incentive and its own governance conditions — see employee ownership trusts and the Canadian rules. Whether the shape of a specific business actually fits that governance test is a separate question from whether the tax rules allow it; see is an employee ownership trust actually the right fit. One illustration is a Kingston business that went this route, though the diligence question it turned on was unrelated to which of the four routes fit best.
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Selling to an unrelated buyer removes the family-specific tax hurdles, but it does not remove the tax bill; see the tax bill is bigger than you were told for what a straightforward share or asset sale still has to clear. This is background for the conversation, not a substitute for it — Treadstone is an AI consulting firm, not a law firm or an accounting practice, and the specific numbers and elections below belong to your own accountant and an estates or corporate lawyer working from your actual figures.
No. Treating a stranger sale and a family succession as an immediate either-or is usually the wrong approach — you can explore both in parallel, keep the family conversation honest, and let the numbers from a real outside process inform what the family transfer actually has to compete with.
Where shares go to a corporation the child controls, ITA s.84.1 treats the proceeds as a dividend rather than a capital gain unless the transaction meets the conditions in the intergenerational business transfer rules. A stranger sale never triggers this, because the parties already deal at arm’s length.
It starts as a financing problem, not a governance one. The management team’s own capital rarely closes the gap on its own, and the federal loan programme most owners assume will fill it was not built for a share purchase — which is why vendor financing is the most common way an owner bridges it.
Sources
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