Commingling is dangerous to your San Diego business.  What is “Commingling” and why should this issue be addressed at the formation of the company and throughout operations?

Commingling is simply using company funds or assets for personal use, or using personal funds or assets for business use.  If you take money out of your business account for personal use, such as to make your home mortgage payment, you have “commingled” business funds with personal funds.  Why is this so important to avoid?

The entire purpose of having a “business” entity is to separate you as the owner, individually and personally, from the entity which is the business itself.  When your business borrows money or creates a liability, it is the business entity that is responsible for the debt or damages, not you personally.  This is known legally as the “corporate veil” and the protection of the corporate veil is what protects your personal bank account and your private assets (vehicles, real estate, collections, investments) from your business creditors. Commingling is dangerous to your San Diego business because it pierces the corporate veil, leaving you and all other owners of the business personally liable for company debts and liabilities.

Let’s say you are married and own a home, and that home has equity of $150,000.  If your business were to be sued (and lost that lawsuit), the creditors would only be able to pursue the assets of the business itself, as well as funds within your business account(s).  The first thing a creditor will do is search for evidence of “commingling.”  If you have used personal funds or assets for business purposes, or business funds or assets for personal use, debts or obligations the creditor can “pierce the corporate veil” and come after you and your spouse, all of the money in your checking, savings and investment accounts, as well as the equity in your home.

This is why commingling is dangerous in your San Diego corporation or LLC.  If you are a co-owner in an LLC, or a shareholder in a corporation and one of your business partners is commingling they are risking your personal assets as well.  The experienced business attorneys at the Watkins Firm have over 40+ years of experience serving the business, science and tech, real estate and medical / healthcare communities here in San Diego and across California. We advise business clients and help to resolve disputes between business owners and members in an LLC when commingling is taking place.  Protect yourself.

Pro-tip: “The corporate veil is an important issue. I mean, especially if you’re going to be doing some big business, you’re going to have big liability or you could personally not have big liability. And also you can have an entity that is a valuable acquisition target. You can have an entity that can be sold in whole or bring in investors. If you do everything right, you get to do all these things. If you get a big opportunity and you didn’t set your company up correctly, then you can’t have your friend with an extra million dollars invest, or be bought out by some other large corporation.

You’ve wind up re-writing everything and restructuring everything and you’ve got to hope you didn’t make any mistakes. And all of a sudden that opportunity doesn’t look like such a good deal. And that person who’s got the investment money will say, well, this person’s not professional. This person’s not really serious about doing business. And you’ll miss it all because you didn’t pay attention in the beginning when you formed a company, and as you operated the business day-to-day. Commingling of assets and funds must be prohibited up front, and monitored throughout the life of the company.”

We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today if you suspect a co-owner, fellow shareholder or business partner of commingling.