Credit Proofing Your Small Business

As a business owner you should be concerned about creditor proofing your assets. Here are ideas to consider:

1.) Transfer assets out of the company:

• Consider placing capital assets in a separate holding corporation so that future legal claims that occur in the operating company do not affect theseassets.  Then lease the assets in the holding corporation back to the operating  company.

• Protect cash assets from potential claims. Pay tax-free dividends from the operating company to the holding company regularly.

• Establish a retirement compensation arrangement (RCA).  This provides a tax-deductible expense that also places the cash into a creditor-protected Trust.

2.) Secure the business owner’s assets:

• Consider securing the shareholder loans by establishing a general security arrangement to provide the shareholder priority over  all unsecured creditors.

• Transfer assets to the lower-risk spouse on a roll-over basis for tax purposes. If there were a future marriage breakup, this type of property would usually be equally divided between the spouses under the provincial family legislation, regardless of who owns title.

• An estate freeze would transfer the future growth of the assets to other family members.

• Transfer the assets into a Discretionary Family Trust to protect them from creditors. A Discretionary Family Trust allows the transferor to retain control over the assets.

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