Corporate borrowing?

Question

My sister and I own a corporation and we need some major structural repairs. Is it better to borrow from the bank or make a personel loan, or does it matter?

Answer 1

It does matter.

The shareholders cannot be held liable for the debts of their corporation, that means if the corporation goes bankrupt the bank cannot seize the private assets of the corporation.

However, if the shareholders do not repay their personal debts (not related to the company) the bank cannot seize the assets of the corporation but will have to seize the shares of the company and have to sell these to somebody else.

As a consequence, the bank might ask that you and your sister personally guarantee any loan given to the corporation. There might also be tax consequences: intrest charged to a company is always fully tax deductable, whereas that isn't so clear with loans given to shareholders to finance a capital increase. Intrest rates for personal loans might be different from intrest loans for corporate loans.

My advice is to consult with your accountant/tax specialist then negotiate the best deal available with a bank.