How to Diversify and Protect the Value of Shares Held in Your Company : Analysis, Reflection, and Action Plans
Issue: Wealth Concentration in the Family Business
For many private business owners, a significant portion of their family’s wealth is tied to the value of the shares they hold in their company. A recent study shows that nearly 70% of entrepreneurs in Quebec have more than half of their wealth concentrated in their business. This creates substantial exposure to risk : market fluctuations, regulatory changes, emerging technologies, or external factors such as interest rate volatility. For example, one entrepreneur who had invested entirely in her manufacturing business saw her net worth cut in half following a sudden spike in raw material costs.
Reflection: Key Questions to Consider
- Do you know the actual value of your shares and how much they contribute to your overall net worth?
- Is your family portfolio sufficiently diversified, as recommended by investment professionals?
- Could you maintain your lifestyle if your company’s value dropped sharply?
- How and when could you sell a portion of your shares to reduce this risk?
- Is selling your SME shares feasible in today’s market?
Solutions to Secure and Diversify Your Wealth
1.Sell to key employees or family successors
This strategy promotes business continuity and allows for gradual equity transfer. For instance, a business owner who sold 25% of their shares to the management team reduced their exposure while boosting team motivation.
2.Obtain an equity loan
A loan secured by shares enables you to extract partial value extraction giving up immediate control. This flexible solution allow you to diversify your portfolio while remaining actively involved in the business.
3.Sell a portion to a Private Equity or Institutional Fund
Phoenix Partners, Namakor, Angus, Champlain Capital, Desjardins Capital, BDC Capital, Fondaction, and FSTQ are examples of funds and institutions that offer tailored solutions for SMEs. These partners enable partial cash-outs while supporting business growth.
4.Maximize financial leverage
Use conventional and operational loans to generate dividends and diversify assets outside the business.
5.Implement Planning Vehicles
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- Individual Pension Plan (IPP) to secure part of your assets.
- Holding Company to invest in diversified assets (stocks, bonds, real estate, whole life insurance, etc.).
- Legal structures to protect lower-risk assets such as the company’s building.
Conclusion: Toward a Balanced Retirement and Financial Independence
It’s natural to hesitate when it comes to taking on debt or relinquishing control. However, financial security and retirement planning must take precedence. Quebec’s tax laws now permit for tax-free rollovers and dividend withdrawals to reduce vulnerability resulting from wealth concentration in the business. Taking time to assess your situation, consulting experts, and planning concrete actions makes true financial independence becomes achievable
To go further, EC2 offers services in wealth diagnostics, financing solutions, and family succession planning.
Wishing you thoughtful reflection!
