What is Commingling and how does commingling harm your business?  Why should members in an LLC or shareholders in a San Diego corporation be concerned about commingling activity?

Commingling is the practice of blending personal funds and assets for business purposes or using corporate credit cards, accounts, funds or assets for personal debts, purchases or obligations.

It is important in this context to understand the nature of a business entity.  We do not establish an LLC, S-Corporation, C-Corporation or California Professional Corporation to simply provide a name for your enterprise or to legitimize it in some way with the State of California.   The first and most important purpose for business formation is to separate “you” the person or the owners as individuals from “the company” in the event of any dispute or lawsuit.  This legal distinction is known as the “corporate veil,” and serves as a brick wall between the personal assets of a company’s owners and investors from the obligations or exposures of the business entity.

Piercing the Corporate Veil

This is about liability – and a creditor’s ability to “pierce” the protections of the corporate veil of your business entity and come after you for everything you have and own to settle business-related debts.  Your corporate entity is like a shield to protect personal assets such as your home, bank accounts and investments.

You will encounter challenges in any business – whether it takes the form of tough economic times or a business dispute.  When your company owes money for any reason, the “entity” limits the available recovery of any creditor to the assets of your company.  The company’s creditors cannot come after you, your spouse and/or your personal assets to settle a debt or obligation related to your company.

How Does Commingling Harm Your Business in San Diego or Throughout California?

How does commingling harm your business in San Diego or anywhere in California?  Commingling legally blurs the line between “you” the person, and “your company” – the LLC or Corporate entity through which you should be conducting all business transactions. The act of commingling allows a creditor to assert “there is no difference between the owner of the company and the company itself.”  This opens the door for creditors to pursue business owners personally for business-related debts.

This isn’t about making life more difficult, or playing at having a company.  This is about protecting the time, money and hard work you’ve invested in your company as well as the money you’ve earned and the personal possessions you’ve accumulated.

How does commingling harm your business?  It allows creditors to legally establish there is no difference between the company and its owner(s) and come after the owner(s) personally to settle business debts.

If you are a member of an LLC or shareholder in a corporation and believe one of your fellow owners is commingling personal and company funds or assets you have a right and responsibility to be protected.  Does commingling sound serious?  It is.  This isn’t just about accounting or taxes, it’s about how your business protects you and the other members or shareholders personally.

We invite you to review our podcast Episode 34 – Business Formation as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.

Let’s discuss the protections of your LLC or corporation, and how to protect against the issues of commingling.