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Becoming a "Real" corporation

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I own a corporation, and every time I do anything with the bank, or large vendors, they all want personal guarantees.

I would bet that when Bell, Rogers, Ford, etc need funding, or purchase a wack of computers, or a fleet of trucks that the board members do not take personal liability for the debt.

Is this just a size thing - get to a certain amount of monthly sales and the request for personal guarantees goes away?

What about a certain number of employees (I have 8) - do I need to cross some magic threshold?

at what point is my company a real corporation with real credit, not back by the majority shareholder?

Are there practices to put in place, or ways to conduct business to get the ball rolling in my favor?
 

toguy5252

Well-known member
Jun 22, 2009
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You have to demonstrate a history of reliable and predictable income. It would also help if your corporation had some hard assets. It of course depends on the nature of the business etc.

It is not dependent on size or number of employees per se but generally speaking the larger the corporation, the longer the history and the greater the recurring revenue the greater the chance that you will be able to do things without personal guarantees.
 
B

burt-oh-my!

If you own a corporation that is in effect no different than you operating as a sole proprietorship, then they will treat it as same, regardless of its legal status.
 

Huron

Member
Jan 26, 2010
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I would bet that when Bell, Rogers, Ford, etc need funding, or purchase a wack of computers, or a fleet of trucks that the board members do not take personal liability for the debt.
I thought Board members could be held personally liable for the debt? I know they are usually covered by directors and officers liability insurance, though.
 

Mencken

Well-known member
Oct 24, 2005
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I thought Board members could be held personally liable for the debt? I know they are usually covered by directors and officers liability insurance, though.
Board members would not normally be on the hook for debt, unless they own the company.

Companies are just like individuals...they can and do have credit ratings, etc. You will get past the point of having to supply personal guarantees only when the company has assets and history considered adequate security for whatever loans are being requested. And then, only if your company is doing well enough that the banks want to compete for your business. Then they may, eventually will, cease asking for personal guarantees.
 
Nov 25, 2007
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Several points of clarification:

1. You do not own a corporation. A corporation is a separate legal entity. The shareholders control the voting rights of the corporation and can elect the board of directors to oversee and manage the corporation. This is why you would want a majority of the shares so you can keep electing yourself as the president to maintain control over the corporation.

2. When you or your lawyer or accountant filed the articles of incorporation, this newly formed corporation is called a private corporation, which means the shares are not bought or sold over the stock exchange. When you refer to Bell, Rogers, Ford, etc....those are called public corporations which means their shares are bought and sold over the stock exchange and these companies are required to disclose all accounting information to the public and subjected to regular audits by chartered accounting firms, whereas a private corporation does not.

3. In order for a private corporation to become a public corporation (usually referred to as going public), requires an IPO (initial public offering) once it's able to satisfy all the requirements of the stock exchange (such as a minimum revenue of several million)

4. So as a president of a private corporation, the bank of course would ask for your personal statements because most private corporations do not have a large track record or significant assets like a public corporation, so they'll need the president to guarantee the loan or whatever you're getting.

5. You are not on the hook for the corporation's debt since a corporation has a limited liability, which is the liability is limited to the corporation and not anyone else. If the corporation goes bankrupt, creditors can only go after the assets of the corporation, and not you. The only time they can go after you is when you are a sole proprietor or in an unlimited liability partnership, because you ARE the company.
 

out4fun

Active member
Jan 8, 2008
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Several points of clarification:


5. You are not on the hook for the corporation's debt since a corporation has a limited liability, which is the liability is limited to the corporation and not anyone else. If the corporation goes bankrupt, creditors can only go after the assets of the corporation, and not you. The only time they can go after you is when you are a sole proprietor or in an unlimited liability partnership, because you ARE the company.
Just don't owe the government...if you own a business that collects pst and gst you are personally liable if you fail to keep up with the remittance.
 
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