on the Bankruptcy Soapbox

A small business owner finds it hard to separate themselves from the business, even when that business is incorporated. After all, the owner’s financial livelihood rises and falls with the success of the corporation’s business.

Twice in the past two days, I had occasion to point out to clients who own small corporations that when the bankruptcy trustee says “you”, the trustee is talking about you, the individual, not the business that you have been immersed in.

But the important legal distinction is that the corporation that owns the business is a separate legal “person” from the flesh and blood human being who owns the stock in the corporation and serves as its officer and director. The debts of the corporation are not necessarily the debts of the shareholder. The corporation can file bankruptcy without the shareholder, and conversely, the shareholder can file bankruptcy without impacting the day to day operations of the corporation.

In analyzing a bankruptcy filing or answering questions from a bankruptcy lawyer or bankruptcy trustee, make sure you know who you are.

More on business bankruptcy.

This entry was posted on Wednesday, September 19th, 2007 at 7:18 am and is filed under Business bankruptcy, How bankruptcy works. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.