Surviving litigation: Accounting and tax solutions to creditor-proof your business assets

Gordon Jessup • November 28, 2016

As a business owner, your company is likely your most valuable asset. You’ve worked hard to build up your business, so it’s important to protect that asset against potential risks. By effectively ‘Creditor-Proofing’ your business, you limit your corporate and personal exposure to creditors, should a problem arise.

Business Enterprise Solutions to Creditor-Proof Against Risk

There are a number of steps that your business can take to ensure that business liability doesn’t become personal liability. These can vary greatly depending upon the size of your business, your industry, and the precise nature of the goods or services that you provide. Some of the most common creditor-proofing strategies are as follows:

Incorporate Your Business.

One of the major functions of incorporation is the separation of business obligations from personal assets. Once incorporated, your business obligations will be limited to business-owned assets.

Understand Your Obligations as a Corporate Director.

Corporate directors of a business can be held personally liable for corporate obligations. If your corporation fails to pay tax, wages, or WSIB premiums, you can become personally liable for not fulfilling the duties of your position.

Count Personal Contributions as a Secure Loan.

Legally filing and cataloguing your personal contributions as a secure loan serves two purposes: First, it formally separates any connection that might be drawn between your business finances and your personal finances. Second, it provides proper documentation and records to ensure that, when your business succeeds, you are properly compensated. And, should your business falter, you may be able to reclaim part of your invested capital.

Make Business Loans Against Business Assets.

Many budding entrepreneurs are tempted to borrow against their personal assets, such as their house or car. It’s important to be advised that doing so will invariably tie your business liability to your personal assets. If possible, it’s far more advisable to secure business loans against business assets, such as receivables, inventory, equipment, property, and other valuable assets.

Use Holding Companies.

A holding company is a useful tool to manage liabilities within a business. By implementing a holding company that is controlled by your primary operating business, you can shield assets such as real estate or expensive equipment from liability. Holding companies technically operate completely separately from your main business—for instance, if your construction equipment is kept in a holding company, that holding company would be leasing the equipment to the parent company.

Contact Fuller Landau for a Complimentary Consultation.

Ensuring that your business is structured to protect your business and personal wealth is of utmost importance, and requires advance planning and expertise from tax professionals. Don’t let your venture expose you to potential liability. Contact us today to book a complimentary consultation.


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