Inventory & Account Receivable

Certain types of property can’t be conveniently held outside of the corporation. Assets, such as inventory and accounts receivable, will undoubtedly cause tax and accounting difficulties, unless they are maintained in corporate form. If these types of assets are significant in value, one solution is to create liens which will have priority over subsequent creditors. For example, the owners of a business or professional practice can make loans to the corporation for working capital or other needs. As security for these advances, the corporation can give the owners, as collateral, a lien on corporate inventory and receivables. This security interest is called a UCC-1 filing under the provisions of the Uniform Commercial Code (UCC). The hoped for result of this UCC-1 filing is that the inventory and receivables will be protected. A judgment creditor would find that the equity in these assets is subject to the superior claim of the business owners and cannot be used to satisfy the judgment.