Opening a small business comes with risks. In fact, 50 per cent of small businesses fail in the first five years. In this case, a bank or other creditor could seize your personal assets and life savings if your business goes under. The good news is, there are ways to protect yourself if you’re a business owner.
SEPARATE PERSONAL ASSETS FROM BUSINESS ONES
Incorporating your business is the most important thing you can do to protect your personal assets. Corporations are separate legal entities, and their assets and liabilities don’t belong to the owners of the business. If the business folds, creditors can only come after the corporation, not you.
If you don’t incorporate, you’ll be personally responsible for your business debts. If your sole proprietorship files for bankruptcy, you’ll also be filing for personal bankruptcy because there’s no legal way to separate personal assets from the company’s. Everything you own will be subject to seizure.
DON’T PERSONALLY GUARANTEE BUSINESS DEBT
Anyone who personally guarantees a business loan is responsible for paying it back, whether it’s incorporated or not. Many lenders require a personal guarantee for a small business loan. However, if you need a loan, opt for a limited personal guarantee, which puts an agreed-upon limit to what the lender can collect from you.
CONTRIBUTE TO AN RRSP
Put as much income as you can into a Registered Retirement Saving Plan (RRSP). All or part of your RRSP may be exempt from seizure from creditors.
LIMIT FAMILY AND FRIENDS’ EXPOSURE
Unless they play an active role in your business’s operation, avoid appointing family members and friends as directors, even if they have a financial stake. Directors are personally responsible for government debts such as payroll taxes and HST. Directors are also legally obligated to ensure all employees receive wages and vacation pay. It could leave your family or friends filing for personal bankruptcy.
GET PROFESSIONAL HELP
If you’re making interest-only payments on debts, having trouble paying employees or missing tax and rent obligations, then it’s time to seek professional help. A licensed insolvency trustee is trained to help small business owners in financial trouble. A corporate proposal or restructuring could be all you need to keep your business alive. Alternatively, a trained professional can help dissolve the company and protect you from legal liability.
CORPORATE INSOLVENCY SERVICES IN OTTAWA AND THE SURROUNDING AREA
D. & A. MacLeod Company Ltd. has a team of dedicated licensed insolvency trustees who can help you close your business while protecting your assets. We also provide corporate restructuring and proposals to help you tackle your debts and get your business back on track. To schedule a free consultation, contact us today.