Avoiding Commingling Personal and Business Assets and Debt

One of the biggest mistakes that business owners, especially smaller business owners make, is commingling funds. Commingling funds can lead to loss of corporate protection (piercing the corporate veil), and can end up costing you personal assets if the business finds itself in legal trouble.

It also can, in serious cases, get you sued by your business, your partners and investors, or your shareholders.

What is Commingling?

Commingling simply means the intermixing between your own, personal assets, income, revenue, debts, and liabilities, with those of the company. They are no longer separate, but are intertwined, with no clear line to separate or delineate one from the other.

Here are some ways to ensure that your business’ property and assets aren’t intermingled or commingled with your own

Titling items – for items that have title, or some recording of ownership, make sure that these items are recorded in the name of the business as being owned by the business, and not you personally. If it is an item that has no actual title or deed or name, you can take other steps to show ownership.

Similarly, any contracts that relate to the item (such as a purchase agreement or a loan agreement) should be purchased or sold in the name of the business.

Bank accounts – It should go without saying that your business should have its own bank accounts, titled in its name. And never transfer money to and from a business account to a personal account, without documentation somewhere of the purpose of the transfer.

Obviously regular transfers, like your own salary, are fine—but even then, it’s important to have some document, even just a corporate resolution, that says what you are being paid and that amount should match up with whatever transfers, reimbursements, or payments, are being made to and from your business and personal accounts.

Treat property and money as separate – In a smaller business, it can be easy to ignore this. After all, it’s your business and your profit or your personal loss anyway, as the owner, so just spend the money directly from the business account for what you need personally, right? Wrong.

Doing that makes it look like you and the business are one and the same—legally, that means that you are the “alter ego” of the business. When the business starts, for example, making your car payments, or paying for your hotel room, it can lead to you and the business being treated the same.

If the business is going to pay for your personal items or expenses, it should be listed somewhere in a resolution or some document, that specifically says what the company will be paying for.

Online accounts – Make sure that your online accounts are titled and named in the business name, if they are for business purposes. Very often, business owners get in trouble because they may have and use, for example, PayPal or Venmo or similar online accounts, which are in their name. That makes it unclear if revenue or a payment is supposed to be for business or personal reasons.

The West Palm Beach commercial litigation attorneys at Pike & Lustig can help you keep your business safe from legal problems or claims down the road.

Sources:

mapscu.com/2024/08/26/setting-boundaries-how-to-avoid-commingling-business-and-personal-finances/

investopedia.com/terms/c/commingling.asp