What to keep in mind
- A sole proprietor and the business are not separate legal persons.
- A corporation can owe its own debts.
- Guarantees and mixed records need additional review.
Start with the entity, not the trading name
A business may use a registered name, a brand and a legal corporation name that differ. Financial distress makes those distinctions important. Write down the legal entity shown on each contract rather than assuming every invoice with the same logo has the same borrower.
The CRA explains that a sole proprietorship does not have separate legal status from its owner. For a proprietor, calling an account a business expense does not create a second legal person. Begin the inventory with the person and the contracts, then ask an LIT to assess the relevant insolvency options.
Understand what incorporation establishes
A corporation is a separate legal entity that can own property and enter contracts in its own name. The CRA also notes that a lender may ask a shareholder for a personal guarantee. Separate personality and possible personal exposure can therefore coexist.
Collect the articles, legal name, corporate records and contract signature pages. A person signing on behalf of a corporation and a person signing a separate guarantee may have different roles. Do not decide the effect from a signature alone without its surrounding agreement. Ask a lawyer to interpret disputed wording and a trustee to explain its relevance to the proposed insolvency procedure.
Build two inventories and a cross-reference
Create one list for the corporation's debts and property and one for the individual's. Add a cross-reference when a guarantee, shareholder advance, joint asset or mixed account connects them. Leave the classification open if records are incomplete.
Useful fields include legal borrower, account number reference, agreement date, signer capacity, security, guarantor, current balance and missing document. For assets, record the owner, purchase record and any finance agreement. This exercise can reveal that a personal account funded company purchases, or that a corporate account has a separately signed personal obligation. It does not establish the legal result, but it makes the question visible before estimates are prepared.
Trace changes in structure over time
Many small businesses begin with informal arrangements and later incorporate. The incorporation date does not by itself show that older contracts were replaced or that a creditor released the previous borrower. Gather amendments, transfers and correspondence about any change in the contracting party.
Imagine a caterer who opened a supplier account as a sole proprietor, incorporated later and kept ordering through the same login. The correct question is what agreement now governs the account and who remains liable. The example does not conclude that the old or new entity owes the balance. It shows why the continuity of a trading name or website is not sufficient evidence of a legal transfer.
Give tax and registration administration its own workstream
The CRA's bankruptcy and business structures guidance describes different administrative consequences for business structures, including business-number matters for sole proprietors continuing after bankruptcy. It also points to account closure and corporate-governance questions.
Prepare a list of tax accounts, filing periods, outstanding returns and correspondence. Ask which professional is responsible for each follow-up and what evidence confirms completion. Do not assume a bankruptcy filing automatically closes every account or resolves every return. The administrative checklist should sit beside the liability analysis, because understanding who owes a debt does not by itself complete tax registration or reporting work.
Ask about operations before making changes
If the business is still trading, describe payroll, customer deposits, leases, licences, unfinished contracts and essential equipment to the advisers. These are operational facts that may affect the advice you need. Do not transfer assets, direct payments to a preferred person or change contracting entities based on an online article.
Ask an LIT, accountant and lawyer to identify the questions within their respective roles. A proposed personal filing and a corporate procedure need coordinated analysis where obligations overlap. Keep advice documented and distinguish a contemplated action from an authorized step. This guide provides a preparation method; it does not recommend continuing, closing or restructuring a particular business.
Leave the meeting with an entity-based plan
A useful assessment record names each debtor, procedure considered, major contracts reviewed, uncertain liabilities and next documents required. It should explain who is dealing with personal guarantees and who is handling tax or corporate administration. Ask for clarification if the advice uses only the brand name when several legal parties are involved.
Our business and personal bankruptcy page provides the broader reference map. The debt classification guide helps organize security and joint obligations. This educational site does not review contracts or provide corporate insolvency services. Its practical outcome is a better entity map for qualified professionals to assess, rather than a blanket claim that incorporation either protects everything or changes nothing.
Follow the evidence
Sources & further reading
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