Never Commingle a Corporate Credit Card with a Personal Purchase

Never Commingle a Corporate Credit Card with a Personal Purchase

As an owner in a San Diego business, you should never commingle a corporate credit card with a personal purchase or expense.  Understand your alternatives, and plan appropriately.  What is “commingling” and why is this such an important practice to avoid? The use of business assets or funds for personal purposes (and vice versa) is known legally as “commingling,” and it can actually cost you your company, and all of your personal assets as well.

The purpose for an LLC or corporation is to establish a separate “entity” from the owners of the company on a personal level.  This entity, this company, is viewed a separate “being” from a legal sense, separate and distinct from it’s owners.  The entity conducts business separately from its owners, and California and federal laws clearly establish the protections of the “corporate veil” that protect you personally from the debts and liabilities associated with the business entity.

When you commingle a corporate credit card with a personal purchase you blend the line between the entity of your “company” and “you” the person.  Commingling is one of the fastest ways for a creditor to get past the protections of a corporate entity and come after your personal assets and accounts.

Once a creditor becomes involved in a dispute or lawsuit against your company, they can seek to “discover” all sorts of information about how you’ve conducted business.  One of the primary things they are looking for is commingling.  Once they discover this, the creditor says to the Court (in effect) “this isn’t two separate entities, it is really one entity – the person.  Therefore, all of that person’s assets and accounts should be available for us in order to settle our debt.”  The creditor seeks to “pierce the corporate veil,” asking the Court to set your company aside so that they can come at you personally.

This is why it so important to never commingle a corporate credit card with a personal purchase or expense. Never use a business asset for personal reasons.  If one of your fellow business owners is commingling assets, you have an obligation and a legal fiduciary duty to put a stop to it.

Dan Watkins Founding Partner of the Watkins FirmPro-Tip: “Commingling is one of those activities that really damages a business. The protections of the corporate veil exist to separate the personal money and assets of a business’ owners from the liabilities of the business itself.  The act of commingling allows a creditor to come in and say ‘there is no difference between Mr. Johnson and Mr. Johnson’s company as money is moved freely between the business accounts and those of Mr. Johnson.  Therefore, we ask the court to pierce the corporate veil of the company as the company is not in actuality a separate entity from Mr. Johnson.’ 

This will allow a creditor to pursue the personal money and assets of the business owner to satisfy the liabilities of the company.  

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. The corporate veil allows the business to take risks without putting the assets and funds of its owners at risk.  That is the whole purpose of having a business entity.” – Dan Watkins, Founding Partner

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.  An owner who commingles assets puts a company at risk.  If you are a co-owner in an LLC or a shareholder in a corporation and are concerned about commingling, take immediate action.