Creditor Protection Strategy
Just about every business person understands the importance of having a tax strategy and an investment strategy. However, relatively few business people insist on having a creditor protection strategy. The best tax strategy and investment strategy in the world won’t help much if you lose all of the money unnecessarily because you did not have a creditor protection strategy.
Here are some things to think about:
- If you are going to act like a banker and lend money to your own company, you might as well act like a smart banker and take security for your loans.
- Directors and officers of corporations have personal liability. Why expose more family members than necessary to this liability?
- Keeping retained earnings in your operating company is like carrying your good china in your pocket while you are skiing. Even if you are a great skier, why take the risk, especially when the retained earnings can be moved to a holding company tax-free?
- An operating company is almost never the right place to hold real estate.
- Does it make sense for a husband and wife to hold title to their house jointly if one of them in unlikely to ever be sued and the other is a director and officer of a company and may have personally guaranteed business obligations?
- It may make sense to operate different businesses in different corporations.
Pallett Valo LLP
Photo by Maureen T. McKay