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Using Liens on Existing or Future Assets

April 13, 2006

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When using an operating/holding company business structure, liens can be used to secure extensions of credit from the owner or holding company to the operating company.

Not only can liens be used when acquiring assets, but liens also can be used when the holding entity (or the owner) makes loans of cash to the operating entity to cover the entity's operating expenses, (i.e., when assets are not being purchased with the proceeds). Liens are then placed on existing assets, and even assets acquired in the future.

Similarly, liens can be created when compensation (salary, bonus, retirement and health plan contributions, etc.) or reimbursement of expenses is owed by the operating entity to the owner, but unpaid. Here, both existing and future-acquired assets once again can be put up as collateral.

However, the rules for recording or perfecting liens on real property are different than those for personal property.

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