Asset protection

How BC law treats it

Legitimate asset protection relies on structure, not concealment. Common tools are an operating company incorporated under the Business Corporations Act, SBC 2002, c 57 (BCBCA), a holding company that receives surplus cash by dividend, family trusts, adequate insurance, and properly documented secured loans. BC has no limited liability company; the closest options are a corporation, a limited partnership or a limited liability partnership under the Partnership Act. Timing matters. Under the Fraudulent Conveyance Act, RSBC 1996, c 163, a transfer made with intent to delay, hinder or defraud creditors or others is void against them. The Fraudulent Preference Act, RSBC 1996, c 164 attacks transfers that prefer one creditor over others when the debtor is insolvent. If the debtor goes bankrupt, the trustee can also challenge preferences and transfers at undervalue under the Bankruptcy and Insolvency Act, RSC 1985, c B-3. Courts look at badges of fraud such as transfers to family members, transfers for little value and transfers made after a claim was threatened. Incorporation limits liability but does not eliminate it. Owners remain personally liable on personal guarantees and for their own negligence or fraud. Directors can be personally liable for up to two months' unpaid wages per employee under the Employment Standards Act, RSBC 1996, c 113, s. 96, for unremitted payroll source deductions under the Income Tax Act s. 227.1, and for unremitted GST under the Excise Tax Act s. 323.

What it means for your business

Good structure set up early lets a business owner take risks without putting the family home and savings on the line. Planning done after a lawsuit, demand letter or insolvency usually fails and can add fraud allegations and costs to the original problem. Owners should review structure, insurance and guarantees at incorporation, when taking on major contracts or debt, and when the business starts generating surplus cash. Example: A Langley contractor sets up a holding company that receives regular dividends from the operating company and buys liability insurance. Years later, when a client sues the operating company, the funds already moved to the holding company in the ordinary course are much harder for the claimant to reach.

Risks and common mistakes

Transferring the family home to a spouse after a claim is threatened, which invites a Fraudulent Conveyance Act action. Assuming incorporation protects against personal guarantees signed for the company's debts. Leaving surplus cash in an operating company exposed to trade and litigation risk. Overlooking director liability for unpaid wages, source deductions and GST. Relying on a US-style LLC structure that does not exist in BC.