Creditor-proofing Your Company

Protecting your company’s assets should be one of your top priorities.  There are several ways to do so.

1) Incorporate your business. One of the biggest advantages of incorporating is that it protects your personal assets from creditors. See “When Should I Incorporate?”

2) Secure your loan. You can loan money to your company and secure the loan by signing and registering a general security agreement.  Without security, you would be an unsecured creditor, and unsecured creditors usually receive nothing in an insolvency.

3) Use a holding company. A holding company can protect the retained earnings of your business.  Your holding company would hold shares in your operating company, and the operating company would pay a dividend to the holding company.  If the operating company required funds, the holding company could provide it with a secured loan.  And it’s not just cash that can be protected by the holding company: the operating company’s real estate and equipment can be transferred to the holding company and leased or rented back to the operating company. 

4) Create an Inter-Vivos Trust (Living Trust). A living trust would involve you transferring ownership of your property into a trust, making it much more difficult for creditors to have access to your personal assets or your company’s assets. 

5) Avoid personal liability for company obligations. Be careful to sign company documents as a director or officer of your company and not personally.  Also, try to negotiate out of having to sign personal guarantees for a bank loan or property or equipment lease.

Located in: Real Estate Law