Taking Security

Joel Lazer, FCPA, FCA, CIRPBlog, Consulting

In 1999 we suggested that if you had a shareholder loan to your company, you should secure it with a General Security Agreement (GSA) .  The effect of securing the loan is to increase your share of available cash in the event of a catastrophic event:  if your company is liquidated or the assets are sold and there is not enough money to pay everyone, you will get more than if you did not put a GSA in place.

The process is simple and inexpensive. There are many forms of GSAs.  The banks all use them to secure their loans.  The GSA must be registered with the Personal Property Registry – not an onerous task.  If the security is an exchange for value, it should be effective immediately.  If your shareholder loan already exists, it will take a year for the registration to be effective.  If you are not sure if your shareholder loan is secured, ask us.  We would be pleased to find out for you.

If you would like to put a GSA in place, a bit of counsel from your lawyer will ensure everything is done properly.  A little security goes a long way.