Could a business partner commingling funds pierce the corporate veil of your corporation? The act of commingling personal and business funds or assets can absolutely put your company and the owners of the company at great risk.
What is Commingling?
What is commingling? Commingling is simply using personal funds or assets for business purposes, or using company funds or assets for personal reasons. A common example is making a car payment for a vehicle titled in the partner’s name (personally) with a corporate credit card. The argument is that the vehicle is primarily used for business purposes, but the law may not agree with you and this simple action of a business partner commingling funds could allow creditors to pierce the corporate veil and hold you and your partner personally liable for the business debts of your corporate entity. The first thing a creditor would do in a lawsuit is seek access to business banking records looking for precisely that type of transaction. Moving money loosely back and forth between a business and personal accounts all but eliminates the protections of the corporate veil.
What Should You Do if You’re Concerned About a Business Partner Commingling Funds
What should you do if you suspect that your partner is using commingling tactics to take more money out of the company than they should? It is not prudent to confront a partner, co-owner, shareholder or another member of your LLC and accuse them of theft without substantial evidence.
The experienced corporate attorneys at the Watkins Firm can help you to discern what is actually happening and put a stop to commingling and any potential theft-related activities. We can help you to develop controls, and investigate past actions and behaviors to identify theft. One example is to make sure the company requires actual original receipts and not copies for all business-related expenses. If you have a cash register or cash on premises you might consider implementing a camera system to monitor activity around the cash. Forensic analysis of business checking accounts and credit card statements should bring wrongful activity to light. When we have genuine evidence, our attorneys can confront your partner.
A Business Partner Commingling Funds Creates Several Civil and Potentially Criminal Issues
A business partner commingling funds creates several civil and potentially criminal issues. Commingling is a breach of fiduciary duty to the company, as well a potential source of embezzlement or theft allegations. The falsification of business records is also consistent with business fraud and embezzlement charges.
If you are concerned about a business partner commingling funds or are worried that a co-owner might be involved in theft from the company resulting in the loss of the corporate veil we invite you to review our podcast Sound Business Insights, the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
The Watkins Firm will work with you to develop a detailed strategy that will take the concerns off of your shoulders and get your mind re-focused on solving the problem and running your company. We can be a valuable partner to clean up internal operations and activities that may be a threat to you or the life of your company.
