I am a business owner. Are there strategies I can use to creditor proof my business?
By: Hussein Hamdani
Yes there are! Most prudent owners of business recognize the need to reduce risk and safeguard their business assets, and their own personal assets, from possible claims brought by other parties. If they are operating their business as sole proprietors, or as partnership with someone else, incorporating the business becomes an essential component of their protection plan.
However, even if the business owners incorporate their business, there are several components that they should use as part of their credit proofing plan . Some of these components include:
• Use of multiple corporations
• Separating ownership of valuable assets from the operating business
• Investing in the operating business by secured loans
• Providing services to the operating business through another company
• Holding valuables in lease separate from the operating business
• Keeping deposits and loans separate
• Stripping equity to holding companies
• Divvying up ownership amongst family members
One of the objectives of bankruptcy and insolvency legislation is that all ordinary unsecured creditors are to be treated equally. There are other pieces of legislation that provide creditors with various ways of challenging improper transactions and recover property which has been improperly disposed of by the debtor. For this reason, it is important to consult with your tax/accounting advisor and your business law lawyer before embarking on a credit proofing strategy.
If you are an owner of a business and you want to mitigate your risk and employ a credit proofing strategy, please feel free to contact me.