Why is it So Important to Keep a Brick Wall Between my Personal Assets and my Company?
Commingling is mixing your personal funds with your business funds, or using business assets for personal reasons. Although it is more common in small businesses such as LLCs, commingling is a common challenge for any small business owner. Business and life move at an incredibly rapid pace, and it can be challenging to keep business and personal accounts completely separate. This is especially true during the start-up phase of a company, or when cash flow becomes tight due to extended receivables.
Many small business owners are simply trying to make life work, and quickly move money back and forth without really thinking about it. A bill might be immediately due, and to prevent an interruption of service you may inadvertently pay a business debt with a personal credit card, or vice versa. While many business owners might think this is just “practical” and “we’ll sort it out later with the CPA” commingling has serious legal implications for your business, and in some cases your liberty.
Commingling is a Breach of Trust that can Pierce the Corporate Veil
Officers of a company, members and shareholders who have access to the accounts and assets of a business legally have a “fiduciary duty” to the company, known as a duty of trust. Commingling of funds or assets is legally a breach of trust that makes it hard to determine which funds and/or assets belong to the company and which are personal. Commingling can open a person up to civil liabilities, and in cases of alleged fraud or embezzlement criminal charges. If you suspect that a co-owner is commingling business and personal funds or assets you should call us immediately for a free consultation at 858-535-1511.
This is one of the fastest ways a creditor or adversary can “pierce the corporate veil” and come after the equity in your home, as well as your personal assets and investments in order to satisfy the debts of the business. An LLC or Corporation is established to provide “limited liability” to the member(s) or shareholder(s) of the company. This establishes the corporation as a separate entity, and protects the owners of the business from having to satisfy company debts with their personal assets.
Commingling makes it difficult for a judge to see where a corporation stops and your personal life begins. The creditors make an argument that there really isn’t a separate entity (the corporation), and that your “business” is essentially an alter ego, not a separate corporation with the protections of limited liability. When this happens, the adversary is able to pierce the corporate veil and all of its protections, and pursue you personally for any debt or judgment that arises out of a lawsuit or liability of your company.
Protect Your Corporate Veil and Speak With Experienced San Diego Business Attorneys
The experienced attorneys at the Watkins Firm will help you to structure your business properly, and provide sound advice on day-to-day operational strategies that will keep your business and personal assets separate. If you are concerned about commingling, or if you suspect one of your co-owners is putting your company at risk we invite you to contact us for a free consultation at 858-535-1511. Protect the corporate veil, and the limited liability your LLC or corporation is designed to provide.