As an entire generation of business leaders prepares to pass the torch, internal succession is emerging as a promising—yet often underestimated—path. According to Repreneuriat Québec, about 50% of Quebec businesses expected to change hands in the coming years will do so within the family or among key employees. With a more flexible tax environment and new support tools, this option is gaining relevance—provided it is well planned.
Plan Ahead to Ensure a Smooth Transition
Many business owners want to prepare for succession but hesitate to discuss it openly. Fears of offending children or employees, concerns about not finding a buyer, or a lack of understanding of the process often slow down these efforts. Yet, a well-planned transition can be a positive experience for everyone involved.
“The key is preparation,” emphasizes Louis Blain CPA, M&A and Corporate Finance Partner at EC2 and creator of the Au cœur de la relève program. According to him, it takes at least three to five years to structure a solid succession plan, as he explains in episode 35 of the Au cœur de l’action podcast, hosted by EC2 Finance. His program, made up of seven modules, helps future successors understand the financial, legal, and human aspects of a transaction, while allowing owners to gauge the real interest of their children or managers. “Some owners enroll their employees in the program simply to see if the entrepreneurial spark is there,” he notes.
Challenges abound: lack of motivated successors, complex financing, rising interest rates, and rapid changes in the business world (artificial intelligence, cybersecurity, etc.). But the benefits of internal succession are considerable: continuity of values, team stability, and maintaining Quebec interests in the company’s capital.
Train Successors Before Naming Them
The program developed by Louis Blain illustrates this philosophy well. Each module covers a step in the process: business valuation, financing, legal issues, negotiation, taxation, transition planning, and above all, the human dimension. “We don’t want to lose strategic employees,” he reminds us. “A successful transaction is one that preserves talent and organizational culture.”
The expert also warns against several pitfalls: paternalistic decision-making, poor communication, and the absence of shareholder agreements—even among family members. “A father could inadvertently end up partnered with his son’s spouse in the event of death if nothing is specified in the will,” he illustrates. These often-overlooked aspects are essential to project stability.
Management Buyout: A Lever for Continuity and Motivation
In another episode of the Au cœur de l’action podcast, Wandrille Lefèvre CPA, M&A and Corporate Finance Partner at EC2, explores management buyouts. This approach appeals to SMEs seeking continuity while valuing key employees.
“This type of transaction reassures financial partners: the successors already know the company and its culture,” explains Wandrille Lefèvre . It also helps preserve jobs and recognize the long-term commitment of certain collaborators. For the seller, it’s a way to pass on their legacy to trusted individuals, sometimes remaining involved through a minority stake.
This was the choice of Michel Berne and Stéphan Harris, co-founders of Ad hoc recherche, who transferred ownership to nine company managers. The sellers retained a block of shares, which facilitated the financial structure for the succession, as they explained in a Journal de Montréal article.
Internal buyouts, however, come with their own set of challenges. First, the right candidates must be identified: managers with an entrepreneurial vision, able to take on risks and leadership. Then comes the question of financing: managers rarely have resources comparable to those of an external buyer. Using a vendor take-back or hybrid financing (including subordinated debt) is therefore common.
“The structure must be well designed so that everyone benefits,” says Wandrille Lefèvre, who recommends comprehensive professional support—tax advisor, accountant, lawyer, and financial planner—to maximize advantages and reduce human tensions.
Intergenerational Transfer Facilitated by New Rules
On January 1, 2024, a major change simplified business transfers within families. As explained by Marc-André Perreault, Partner and tax lawyer at De Grandpré Chait, in episode 31 of the EC2 Finance podcast, new federal tax rules harmonized with those of Quebec correct a historic inequity: it is now just as advantageous to sell your business to your child as to a third party.
This new framework allows for the capital gains deduction (up to $1 million per parent) during a family sale, provided specific criteria are met: the business must be active, the parent must relinquish factual control, and the successor child must remain involved for several years. Two options are available:
- Immediate transfer, where the seller fully retires;
- Gradual transfer, more flexible, where the seller maintains a mentoring role during the transition.
“The regime is generous but demanding,” notes Marc-André Perreault. “A mistake, such as reinvesting or resuming control too soon, can cancel the tax benefit.” He recommends planning at least two years in advance and obtaining an independent business valuation to prove fair market value—a requirement often imposed by tax authorities.
Thanks to these adjustments, family transfers have become a realistic and secure option, contributing to the continuity of Quebec’s entrepreneurial fabric.
A Collective Challenge
Whether it’s a family transfer, employee buyout, or management buyout, internal succession offers a balanced path between sustainability and modernization. It allows the seller to gradually monetize the value of their business, remain involved at their own pace, and preserve ownership of their organization.
For entrepreneurs preparing for succession, the EC2 team offers personalized professional support. A meeting with one of our experts can be the first step toward a successful transition.
