What You Need to Know About LLCs and Commingling
MIXING PERSONAL & BUSINESS FINANCES WHEN YOU HAVE AN LLC
Setting up a Limited Liability Company (LLC) for your business can be a wise decision. One of the major benefits of forming an LLC is that it helps shield your personal finances from difficulties your business may endure. If your LLC is faced with judgments for some reason, your creditors would be unable to make you personally pay that judgment. However, if you commingle your personal and business finances, this protection could be lost.
What is commingling?
Commingling is essentially mixing your business and personal funds. You might do this by taking money for personal use from your business account without proper documentation, only having one bank account for personal and business use, or even using personal funds to pay business expenses. Anytime you perform one of these acts, you blur what should be a very distinct line between you and the LLC—this line can be referred to as the corporate veil and if you commingle, it can be pierced.
What does it mean to pierce the corporate veil?
The corporate veil is the separation between your personal finances and your business. It is essentially what you create when you set up a business entity. For that reason, you don’t want to do anything that might compromise it. When you commingle funds you make it possible for creditors to reach through—or pierce—the veil and access your personal funds. For example, if you use your personal funds for business expenses, a creditor could argue that your business and personal finances are one and the same and should not be kept separate or protected.
How can you avoid commingling and keep your corporate veil intact?
Retain an attorney to help you set up your business entity and continue to manage your business throughout its duration. It’s also crucial to enlist an accountant who understands corporate entities and will help ensure your books are kept in order. Both of these professionals can fully educate you on commingling and quickly answer any questions you might have.
Although it may be convenient to use your personal debit card when you’re running a bit low in your business account, without proper documentation, the repercussions could be very inconvenient.