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Protecting Your Personal Assets From a Business Disaster.
There are steps a business owner can take to protect his personal assets from a business disaster. It is best if these steps are taken when the business is started.
One of the first considerations is whether the business is incorporated or not. Incorporating the business offers various protections for a business owner.
- Protecting Your Personal Assets From a Business Disaster. Get professional advice. An accountant and a lawyer can give you advice to get the business off to a good start.
- Protecting Your Personal Assets From a Business Disaster. Only one spouse should be a director. Limit family exposure to risk. Directors are responsible for any outstanding source deductions, GST and provincial tax.
- Protecting Your Personal Assets From a Business Disaster. Be loyal to the business’s statutory creditors. Always pay statutory debt on time. Statutory debt owing is a personal liability of directors.
- Protecting Your Personal Assets From a Business Disaster. Don’t have significant assets in your personal name. You can have all your significant personal assets in your spouse’s name. This works best if you have a strong marriage.
- Protecting Your Personal Assets From a Business Disaster. Avoid giving personal guarantees to suppliers or a landlord. In some cases such as dealing with a bank you must give a personal guarantee or you will not get the loan. In many cases simply stating that a personal guarantee in not available will suffice.
- Have only the corporation borrow funds from the bank. Don’t allow the bank to lend the money to you personally. Structuring the debt this way will mean that if the business fails the bank will be paid funds from the sale of the business assets first and will only look to your personal assets if there is a shortfall after liquidating the business assets.
- If a family member lends money to the business that person should take back security for the loans. The security documents and the registration of the documents must be done by a lawyer. This way, if the business fails the family member will get paid ahead of unsecured creditors.
- Have a plan for a successor for the business. A strong business must have a strong succession plan so the business can carry on or be sold when the owner decides to retire.
- Be cautious of rapid business expansion. There are risks involved as well as opportunities. Many businesses have failed because they took on a huge project and later found out that they under bid the job. Another danger is opening up a branch in another location when you don’t have skilled enough staff to run the branch.
- If the business incurs financial difficulty seek professional advice early. Acting quickly may give you time to correct the problem and have the business survive.
- Know when to quit. Carefully consider the problem and decide how much time and money you are prepared to put into saving a troubled company.
If you wish to contact a local bankruptcy trustee call a trustee at 1-877-879-4770 (24/7) toll free or contact us online at one of our 426 trustee offices across Canada.
Last year I was like so many of you here, swimming in debt, afraid and deeply humiliated that I was in this situation. Because of the information in this website and responses to my questions from Trustee, I was able to move forward, declared bankruptcy and this week received my discharge papers!
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