What to keep in mind
- A business name does not establish a separate debtor.
- A corporation and an owner need separate inventories.
- Guarantees need their own contract review.
Identify the legal borrower first
A shop name on an invoice does not resolve who owes the money. Begin with the actual loan, lease, credit application or supplier agreement. Record the contracting party and the capacity in which each person signed. Keep the account name separate from the entity name if they differ.
The CRA explains that a sole proprietorship has no separate legal status from its owner. Calling a balance “business debt” therefore does not by itself isolate it from the proprietor's personal finances.
Incorporation changes the starting point
A corporation is a separate legal entity, capable of owning property and entering contracts. The CRA also notes that a lender may ask an owner for a personal guarantee. These are separate facts: the corporation may be the borrower while a person has additional exposure under a guarantee.
Build two folders, one for corporate obligations and one for personal obligations. Cross-reference a contract when it appears relevant to both. Do not erase a possible personal obligation simply because its proceeds paid a company expense. Equally, do not assume every corporate balance is automatically a shareholder debt.
Use an entity and document map
List the entity, contract, amount, security, guarantor and uncertainty for each obligation. For property, record the legal owner and how it was purchased. Include mixed-use vehicles, shareholder advances and accounts whose names changed as the business developed.
An illustrative example is a consultant who began as a sole proprietor, later incorporated and continued using an older credit account. The question is not whether the work now belongs to a corporation. It is which party owes the older account and whether the agreement changed. Bring the original contract, later amendments and the incorporation date for review.
Coordinate insolvency and account administration
The CRA's bankruptcy and business structures reference describes different administrative consequences for sole proprietors, partnerships and corporations. Account registration and closure should be discussed explicitly with qualified advisers.
Ask an LIT to identify which insolvency procedures are relevant to each debtor and which tax or legal questions need another professional. Our sole proprietor versus corporation guide expands the preparation exercise. This page does not recommend winding up a company, moving assets or ending customer contracts. Those choices require facts about the business and the obligations involved.
Follow the evidence
Sources & further reading
Continue with the reference that answers your next question.
Guides/Sole Proprietor Vs Corporation