What happens to your business when you retire?
Preparing for the practical, tax and financial consequences
If you run a business, retirement means more than just giving up work. It’s a key moment in life when you decide what to do with your business and how you will remain involved. You have plenty of time to explore your options if you start early.
Retirement: not a black-and-white decision
There is no single correct way of retiring. Some people choose to discontinue their activity in full, while others phase out, transfer or sell their business. More and more business owners continue working part-time or even full-time after their retirement.
Every choice has financial, tax and practical implications for your income and the future of your business. Timely consideration of all the options allows you to consciously choose the process that best matches your plans and expectations.
What are the options?
If you’re self-employed without a company structure and you don’t have a successor or you deliberately choose to stop your activities, closure is a logical step in many cases. Winding up is more than just giving up work – you also close a chapter in accounting and tax terms. Be sure to obtain assistance in order to avoid loose ends or errors causing problems later on, so you can close this chapter with peace of mind.
If you are a sole trader without a company structure, you transfer the business rather than a company. This means that you sell everything that has value, i.e. your customers, the name, equipment and contracts. This has tax consequences and requires greater attention to legal details, as you need to record clearly what is included in the transfer and what is not. Certain property, such as private real estate, can be specifically excluded from the deal. A clear description prevents discussions and creates clarity for both parties.
When you stop working, it doesn’t automatically mean you also have to close your company. In some cases it’s the best choice. In other cases, however, it’s wise to allow the company to exist (for example, for asset management purposes). This choice requires a well-considered approach that covers legal and tax aspects. Seeking advice early on will help you choose the option best suited to this new phase of your life.
When a company is transferred, this generally involves selling its shares. Everything passes to the new owner in a single transaction and you, as a shareholder, receive payment for this transfer. This makes it an interesting option from both a legal and a tax perspective. Yet a great deal of work needs to be done upfront, which includes exploring whether your company is ready for a transfer and verifying that no private capital or property is present in the company. Timely tax advice, guidance and a proper valuation tend to require more attention than the transfer itself.
An increasing number of people who own a company remain active after retirement. This can be a great choice if you consider a few important questions:
- What criteria do you need to meet to earn unlimited additional income?
- What is regarded as income?
- What role does your company play?
If you assess your situation in advance, you can make sure that working after retirement doesn’t have any unexpected consequences for your income.
Plan carefully and sort everything out well in advance
Retirement is a turning point for business owners that involves far more than just giving up work. Do you want to remain active, transfer the business or step down? These choices determine the future of your business: does it remain in existence, does it take a new form or does the story end here? All these factors are connected and call for a well-considered approach.
By planning ahead, you retain control over how and when your income changes, you avoid financial, tax or administrative surprises and you help yourself make conscious choices, allowing you to gradually transition to life after business ownership.
