Praparing if you fail


A frequent cause of personal financial difficulties is the failure of a business and the attendant business-related liabilities personally owed by the company owner. Here are some simple suggestions to preemptively protect your personal assets in the event the business fails:

1. As we suggested in the previous section, consider incorporating the business. Incorporation will provide you with a level of creditor protection. So long as you’ve been current on paying your statutory liabilities (listed in the previous section) and those creditors for which you gave a personal guarantee, you’ll be personally protected from your other business debts.

2. Consider transferring personal assets to a spouse’s name or a family trust. After the transfer, these assets no longer owned by you and are therefore not subject to claims of your personal creditors.

3. If you are putting away money for retirement, consider investing in RRSPs that are exempt from the claims of your personal creditors; for example, segregated funds. The distinction between segregated funds and mutual funds is that segregated funds are insurance contracts. The Ontario Insurance Act provides that:

“where the beneficiary of the insurance contract is a spouse, child, grandchild or parent of a person whose life is insured… the rights and interests of the insured in the insurance money and in the contract are exempt from execution or seizure…”

Therefore, insurance products held in RRSPs will be exempt from seizure by your personal creditors.

A very important point: you should make these arrangements before you get into personal financial trouble, not after you’ve become exposed to personal debts. If you were to say, transfer your home to your spouse when the bank is trying to collect on the personal guarantee you gave to them, these arrangements will not work. There are laws that can set aside transfers of assets where the intent is to hide your assets from your creditors as they’re trying to collect their debts.

Therefore, make arrangements to protect yourself personally with these tips before you open the doors to your business, not after you’ve closed them!


Finding a location

Many entrepreneurs start their businesses from home. If that suits you, then read no further.

However, if you require actual business premises, you should consider the following factors:

  • How will your customers get to you? Is it conveniently located by public transportation? Is there free parking?
  • How much space will you need to operate?
  • What is the reputation of the landlord? Do they regularly maintain the upkeep of the building premises? You don’t want to turn off potential customers because they think your place looks like a slum.
  • How are the views and lighting? You don’t want rent a place with a view of the wall from the next building. You want to create a nice work environment for your staff so they’re happy and productive.
  • Will you be able to get the landlord to waive a personal guarantee for the lease?

After considering these factors, review the price per square foot and negotiate a mutually agreeable arrangement with landlord. For example, you may be able to get at few months free rent as part of the final lease agreement.