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What Is an Internal Claim?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 28 June 2014
  • Copyright Protected:
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    Conjecture Corporation
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An internal claim is a term that is related to the protection of the assets of the owners of businesses in the case of lawsuits that may be the result of liability actions or damages. The meaning of internal claim is a description of the type of business assets that a creditor to a business may legally lay claim to. Such a distinction is extremely vital in an increasingly litigious society and from the angle of smart business conduct. The process provides a figurative wall between the property and assets of the owner or owners of a business and the assets of the business, effectively limiting what a creditor can expect to obtain in any claims against the business.

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For example, assuming a business borrows money from a bank in order to finance a project that did not succeed, the bank will still expect its money back from the business, regardless, and the business would not have the means to repay the loan. In this case, one option for the bank, apart from mediation or arbitration, would be to go to court. If the court awards the bank a stated sum, the bank can legally obtain a writ of execution to obtain its money through seizing and selling the assets of the company. The purpose of the internal claim in this situation would be to limit what the bank can obtain from the company to only the business assets and not the personal assets of the owners of the business.

The same can be seen in a situation where the assets of the business are owned by several owners. For example, while franchises might operate under the name of a wider corporation, the property of the business might belong to the business owner. In the event that the corporation itself is sued by creditors who are awarded the assets of the corporation, the franchises would be safe from such claims, depending of the nature of their contract with the corporation and due to the existence of an internal claim. While businesses would do well to clearly define their assets and that of the business, some types of businesses are not legally allowed to do so. An example would include something like a limited partnership, which is due to the legal requirement for such a business to take care of any debts that may arise in the course of the business.

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