Owner Advances: The Debt — Equity Dilemma 1

Abstract

It is common practice for owners of small business to make advances to the firm with the intent that these advances be considered debt. However, the Courts have carefully scrutinized these types of arrangements when bad debts are claimed and have frequently judged them to be equity investments.

The intent of this article is to present characteristics which will infer favorably toward a debt determination. These factors are discussed in relationship to the court cases which lend their support.