Something all business owners should be aware of is how to protect themselves in a bankruptcy.
It’s not always pleasant to consider that something terrible could befall your business and you could be in serious financial trouble, but in order to ensure you don’t lose everything you have worked hard for, knowing how to protect yourself is crucial.
The failure of a business and all of the related liabilities and expenses could be the responsibility of the owner, and these debts could result in filing for bankruptcy or a consumer proposal.
Business Incorporation
Doing this can provide you with creditor protection as the business owner.
Most of a corporation’s obligations are limited to its assets, as the structure of this helps to provide protection for personal assets.
When you choose this structure, you are legally separating yourself from your business.
Directors of incorporated businesses may be liable for statutory debts, for example:
- Payroll source deductions.
- Harmonized sales tax collected.
- Employee wages and vacation payable.
Ensuring these debts are paid on time is key to staying safe.
Properly Document Personal Loans
It’s not uncommon for owners of incorporated businesses to use their personal funds to invest in their business without any documentation to show that they have done this.
Any personal loans given to the business should be well documented with a General Security Agreement and it should also be properly registered and perfected under the Personal Property Security Act.
These loans will then be protected in the event the business fails, and the owner will have priority over the assets of the business rather than creditors.
Without this protection you will be listed as an unsecured creditor and will have to wait to be paid.
Acquiring Personal Assets In A Spouse’s Name Or Family Trust
These will not be subject to the claims of estate creditors as they do not form part of the transferer’s bankruptcy estate.
Don’t Give Personal Guarantees Of Company Obligations
Unless it is absolutely imperative that you do so, you should not give personal guarantees of company obligations.
If you guarantee the debt then you will become personally responsible for it.
Investing In Registered Retirement Savings Plans
Ensuring you’re saving in a registered retirement savings plan that is exempt from claims will help to protect your future from the effects of bankruptcy.
Contact Bankruptcy Canada For Advice Today
Ensuring you take the steps to protect yourself, business, and best interests should be done at the start of any business venture.
If you plan carefully, then you can be sure you avoid the worst.
If you need further help or advice, Bankruptcy Canada can assist you.
With many years experience helping people in stressful financial situations, we can come up with a personalised plan that suits your needs.
Get in touch with us today!
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