So, you have spent decades of your life working for someone else. You want to continue to work in retirement, but the idea of having a boss just isn’t for you. Maybe you have always dreamed about owning your own business some day and now you finally have the time and resources to go for it. But starting a business is risky and you don’t want to lose your savings. This article discusses some of the ways you protect yourself as a new business owner.
These are, essentially, three main options for structuring your business: a proprietorship, a partnership, or a corporation.
If you’re considering owning a business with others (partnership or corporation), ensure that you have a proper partnership or shareholders’ agreement in place. These agreements act as a “playbook” that lists the procedures to follow when certain events occur, such as death of an owner or owner disputes. They should be reviewed and updated regularly with your lawyer.
No one gets into business to fail, but the reality is that many businesses end up closing. If that happens, your personal assets could be exposed to creditors.
One of the biggest advantages of operating as a corporation is that you gain limited liability. This means that you are not personally responsible for certain corporate debts. This would not extend to Canada Revenue Agency (CRA) debt, such as payroll, income tax or Goods and Services Tax remittances. As well, it would not protect you from a financial institution if you signed personal guarantees to borrow money to fund the business. Limited liability could help provide protection from your suppliers though.
Operating as a proprietorship or a partnership does not offer this same creditor protection. Does this mean that creditors could go after your retirement savings?
Fortunately, the Federal Bankruptcy and Insolvency Act (BIA) provides creditor protection in the event of personal bankruptcy for certain registered retirement savings accounts. These would include your Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF), among others. As well, several provinces provide additional creditor protection for certain investment accounts outside of bankruptcy.
If you would like creditor protection for your retirement savings beyond what the BIA and these certain provinces can provide, speak to your financial advisor about purchasing insured wealth products. These would include insurance Guaranteed Investment Certificates (GICs)1, payout annuities and segregated fund contracts.
Certain conditions must be met to gain creditor protection through insured wealth products. Creditor protection cannot be guaranteed.
In a perfect world, your business flourishes and you never have to worry about losing your savings. Unfortunately, you can’t predict the future, so preparing a proper risk management plan is a must for any business owner, especially someone starting up in their retirement years.
1 Insurance GICs are accumulations annuities issues by Sun Life Assurance Company of Canada.
Information contained in this article is provided for information purposes only. Its not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.