Small business Archives - Page 3 of 3 - Northern California Bankruptcy Lawyer

Startling Benefit To Incorporating Your Business

Incorporate to protect yourself from the debts of your business, shriek the ads.

That’s the theory of incorporation: create a separate legal entity in the form of the corporation.

Let that entity incur debt and expose itself to other risks. If it fails, the personal holdings of the owners of the corporation are safe.

But, in the real world, most big ticket debts that a corporation might incur require the guarantee of the owner.

So if both corporation and owner are liable for the business debts, what has incorporation gained you?

You’ll be surprised.

Incorporate to protect the business

Consider the same move, incorporation, for the opposite reason.

Incorporate to protect the business from the owner’s debts.

A sole proprietor and his business are one and the same in the law.

When the proprietor has a tax problem or there’s a judgment outstanding against him, all of the business cash and assets are exposed to that debt.

The business bank account can be levied for the owner’s back child support or a judgment against the owner for unpaid magazine subscriptions. [Read more…]

Collections Is A Boogie Man For Businesses Too

By Cathy Moran

“Being sent to collections” is a boogie man for businesses as well as for individuals, I learned this week.

I was counseling a small business with lots of vendor debt.

We were looking for a strategy that could keep them in business.

When I suggested that management sort their payables into vendors they needed and wanted to keep, and those they could live without and wouldn’t pay going forward, I heard the familiar refrain: “but they’ll send us to collection!”

So?

Sent to collections

Where is “collections”? What is so bad about a corporation being there? It isn’t painful… [Read more…]

Business credit card & bankruptcy

By Cathy Moran

Credit cards the business owner thinks of and uses for business may not be a debt of the business at all.

Andy Miofsky addressed the fact that where the shareholder has guaranteed the debt of the corporation, the shareholder’s discharge in bankruptcy doesn’t relieve the corporation of liability.

Lots of owners of incorporated small businesses have funded business operations on credit cards. The card may have the business name on the plastic, but often the corporation is not contractually obligated on the debt.

Where that is the case, the discharge of the shareholder’s liability on the card may have no impact at all on the corporation.

The difficulty in these cases is getting possession of the credit application and determining precisely who is liable.

Preserving a Small Business through Bankruptcy

By Cathy Moran

Chip Parker and I have been writing about bankruptcy issues for the self employed over on the BankruptcyLawNetwork.
Chip pointed out that the bankruptcy of the shareholder does not protect the operations of a corporation that the debtor owns, since the corporation is not in bankruptcy, the shareholder is.
The flip side of that proposition is that since the incorporated business is not in bankruptcy, it can usually proceed to operate through the bankruptcy of its shareholder. After all, it is a separate entity, distinct from the owner of the stock.

When a small business is a proprietorship, the assets belong to the owner and are part of the owner’s bankruptcy estate when the owner files for debt relief. The trustee may want the business to stop operating 1) so it does not incur more operating debts; 2) so that the trustee is not liable for any tort claims that arise after the commencement of the bankruptcy; and 3) so the assets can be preserved and accounted for.
I have frequently advised clients with an operating business or professional practice that they want to continue to run post bankruptcy to incorporate before filing. In that manner, they draw a circle around the business assets and create a separate legal “person” who is not in bankruptcy. It shields the trustee from the concerns set out above and allows the debtor to continue to work.
If the stock in the corporation has non exempt value on the open market, the debtor may buy the stock from the trustee. Most small businesses however have little value if the owner were to stop working in the business. Trustees frequently abandon such assets as having insignificant value for creditors.

Incorporate to protect the business

Sent to collections

Categories