CREDITOR PROTECTION 10 Tips for Business Owners

10 Tips for Business Owners

BUSINESS OWNERS, OFFICERS AND DIRECTORS Owning or running a business can be very rewarding But you can also be exposed to a lot of risk

Owning or running a business can be very rewarding

But you can also be exposed to a lot of risk

What if something went wrong with your business? Business insurance covers against liability, but not insolvency Personal assets are at risk of creditor claims 3 out of 4 Canadian small business owners have not taken adequate steps to protect their personal assets BUSINESS OWNERS, OFFICERS AND DIRECTORS

What if something went wrong with your business?

Business insurance covers against liability, but not insolvency

Personal assets are at risk of creditor claims

3 out of 4 Canadian small business owners have not taken adequate steps to protect their personal assets

PERSONAL LIABILITY Business owners, officers and directors can be personally liable for: Any debts for which the business owner, officer or director has given a personal guarantee Any statutory debts, such as wages * and vacation pay Any source deductions owed to Canada Customs and Revenue Agency * Directors are personally liable for wages to a maximum 6 months’ wages for each employee owed.

Business owners, officers and directors can be personally liable for:

Any debts for which the business owner, officer or director has given a personal guarantee

Any statutory debts, such as wages * and vacation pay

Any source deductions owed to Canada Customs and Revenue Agency

PERSONAL LIABILITY Business owners, officers and directors can be personally liable for: Goods and Services Tax and/or Provincial Sales Tax Health and safety violations Environmental damage

Business owners, officers and directors can be personally liable for:

Goods and Services Tax and/or Provincial Sales Tax

Health and safety violations

Environmental damage

HOW CAN YOU REDUCE THE RISK? Here are 10 tips to help you manage your risk…

Here are 10 tips to help you manage your risk…

TIP # 1 Consider incorporating your business if it is either large or at risk of litigation. Professional practices should carefully consider this option Even with incorporation, personal assets can be attached for debts covered with a personal guarantee

Consider incorporating your business if it is either large or at risk of litigation.

Professional practices should carefully consider this option

Even with incorporation, personal assets can be attached for debts covered with a personal guarantee

TIP # 2 Always pay your statutory debt on time. Not all debt is created equal Directors and officers can be personally liable for these debts

Always pay your statutory debt on time.

Not all debt is created equal

Directors and officers can be personally liable for these debts

TIP # 3 Ensure sufficient personal liability coverage. e.g. director’s, home and auto coverage In the event of a serious accident your personal assets (e.g. home, car or boat) could be seized to pay any shortfall in insurance

Ensure sufficient personal liability coverage.

e.g. director’s, home and auto coverage

In the event of a serious accident your personal assets (e.g. home, car or boat) could be seized to pay any shortfall in insurance

TIP # 4 Ensure your spouse is outside the reach of creditors in the event anything goes wrong in the business. Directors and officers can carry liability for debts If your spouse is an employee, or not involved in the business, you’ll have much more flexibility in your creditor protection plan

Ensure your spouse is outside the reach of creditors in the event anything goes wrong in the business.

Directors and officers can carry liability for debts

If your spouse is an employee, or not involved in the business, you’ll have much more flexibility in your creditor protection plan

TIP # 5 Make use of spousal RRSPs to transfer wealth to a spouse. Move personal wealth away from creditor risk

Make use of spousal RRSPs to transfer wealth to a spouse.

Move personal wealth away from creditor risk

TIP # 6 Consider moving personal assets to your spouse’s name. e.g. your house and savings Home ownership can be transferred to your spouse tax-free If your spouse is involved in the business, consider setting up a family trust

Consider moving personal assets to your spouse’s name.

e.g. your house and savings

Home ownership can be transferred to your spouse tax-free

If your spouse is involved in the business, consider setting up a family trust

TIP # 7 Hold life insurance contracts personally (not corporately). Name a “family class” beneficiary on life insurance contracts and list yourself as both the owner and the life insured Can prevent creditors from seizing the assets, as well as ensuring assets transfer immediately to your beneficiary at your death If the death benefit is payable to your estate, your assets can get tied up in probate and may be subject to fees

Hold life insurance contracts personally

(not corporately).

Name a “family class” beneficiary on life insurance contracts and list yourself as both the owner and the life insured

Can prevent creditors from seizing the assets, as well as ensuring assets transfer immediately to your beneficiary at your death

If the death benefit is payable to your estate, your assets can get tied up in probate and may be subject to fees

TIP # 8 Place your savings into investment products sold by insurance companies. Segregated funds and GICs from an insurance company can offer the same potential for creditor protection as regular life insurance Name a “family class” or irrevocable beneficiary on the investment

Place your savings into investment products sold by insurance companies.

Segregated funds and GICs from an insurance company can offer the same potential for creditor protection as regular life insurance

Name a “family class” or irrevocable beneficiary on the investment

TIP # 9 Get professional tax and legal advise on a creditor protection plan. This is not a “do-it-yourself” plan

Get professional tax and legal advise on a creditor protection plan.

This is not a “do-it-yourself” plan

TIP # 10 Make a plan now. Once a business is in trouble, it’s almost impossible to establish a creditor protection plan It must be done while the business is healthy or new

Make a plan now.

Once a business is in trouble, it’s almost impossible to establish a creditor protection plan

It must be done while the business is healthy or new

TAKE ACTION At Diatel & Fedullo Wealth Management, we can help you develop a creditor protection plan with the assistance of legal and tax professionals. To learn more about this, contact Mark Diatel today. Email: [email_address] Tel: (416) 270-1343

At Diatel & Fedullo Wealth Management, we can help you develop a creditor protection plan with the assistance of legal and tax professionals. To learn more about this, contact Mark Diatel today.

Email: [email_address]

Tel: (416) 270-1343