October 19 2015

One of the benefits of incorporating your business in Canada is that you can protect yourself and your personal assets from any liabilities. If you’re incorporated then, generally speaking, neither you nor your employees are personally liable for any actions taken while working on behalf of your business.

Like everything else, however, there are always exceptions to the rule.

Incorporating after the fact: If you have already started doing business with others, and incorporated after the fact, you could be on the hook. Ontario courts have made it clear that, unless you inform your clients of the incorporation in writing, consistently and promptly, you could still be personally liable even after incorporation. You have to make it clear that you are negotiating or dealing on behalf of your corporation and not in your own personal capacity. This includes indicating the change on your checks, letterheads and contracts.

Signing a Personal Guarantee: Oftentimes, and especially for new or small businesses, suppliers, banks and landlords won’t enter into a contract with you unless you sign a personal guarantee. By signing a personal guarantee for a particular loan, lease or contract, you basically promised that if your business can’t pay the outstanding amount that is owing, then they can come after you and your personal assets to enforce payment.

Signing contract in your own name: If you didn’t properly review your business contract, or didn’t have a lawyer review your contract, and signed under your own name, then you could potentially be personally liable. By signing under your own name and not the company name, you are indicating that this deal is made on your behalf, not on your company’s behalf. Careless mistakes like this could lead to bigger legal problems down the road.

The list goes on, but these are some of the main considerations and main points of discussion I have with my business clients, regardless of whether their business is incorporated or not.

 What can you do to protect your personal assets?

The best way to ensure that you are not personally liable for your company’s operations is to do a thorough review of all business documents and operations. Or, you can ask a business lawyer like me to review and conduct an internal audit of your company’s operations. Depending on the size of your company and how long ago you started, this can take from a few hours to several days or more. However, with a properly set up business and operational structure, you could be saving yourself, and your family, from hundreds of thousands of dollars in personal liability down the road.

This article is for informational purposes only and does not constitute legal advice. If you wish to seek legal advice, contact us today.  613-747-2459