What is “Commingling” and why is commingling dangerous in a San Diego business environment? 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 an 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.
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), 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 wife, all of the money in your checking, savings and investment accounts, as well as the equity in your home.
Why is commingling dangerous in a San Diego business 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 advise business clients and help to resolve disputes between business owners and members in an LLC when commingling is taking place. Protect yourself. We invite you to call 858-535-1511 for a free consultation if you suspect a co-owner, fellow shareholder or business partner of commingling.