The Dangers of Commingling Business and Personal Assets and Property
One of the great things about operating as a duly formed and legally recognized Florida corporation is the corporate protection for liabilities. Absent personal wrongdoing (like fraud), or your signing a personal guarantee, your personal assets cannot be touched or collected upon, to satisfy the debts, liabilities, or judgments, of the company.
But despite the power and benefit of this protection, you may be surprised how many people jeopardize, and ultimately lose this protection because they make the mistake of commingling their personal and business assets.
How Commingling Happens
In most cases, the intermixing of business and personal assets happens innocently; the business owner may just not be careful, or the owner may be rushed and get sloppy. Or, the business owner may feel like the corporate money “is mine anyway,” especially in smaller companies, and thus, may not give thought to what account money is being put into, or how corporate revenue is being spent.
As a result, corporate revenue ends up in personal bank accounts, company cars get paid with personal bank accounts or checks, online sales are deposited into personal accounts, or the company owner will pay corporate debts from his or her personal accounts. Cash can be particularly difficult; cash from a business sale can end up in a pocket and expended on a personal need or bill and may never even be accounted for.
Creditors Will Go After You
After all this intermixing, it can be hard to tell whether an asset, a debt, a liability or a bank account, belongs to an individual or the company.
You should care about this potential error, because if the company were ever sued, you will have to show what assets the company has to pay the debt—assets that are separate and apart from your personal assets. And when you have established a history of intermixing business and personal money your creditors will see that as an opportunity to piece the corporate veil.
A creditor will argue that there is no way to tell where the corporation’s assets, funds, or property ends, and your personal assets begin. They will argue that you are just an “alter ego” for the company, or that by commingling, you are trying to either hide your, or the corporations, money or assets.
Business Disputes and Fiduciary Duties
Commingling of assets also becomes an issue in disputes between business partners. Often, whether intentionally or accidentally, a business partner, manager, or owner, will commingle corporate profits with their own. The other owners or partners see this as theft; those profits that you are intermingling with your personal property are profits that should belong to the company, and thus should be divided amongst the owners or shareholders.
In very severe situations, someone who intermixed business and personal assets, can be sued for breach of fiduciary duty—essentially, a lawsuit alleges that the person is stealing from the company by failing to properly segregate and thus account for, business income or revenue or property.
Don’t get yourself in trouble. Let us help you with the legal aspects of operating and organizing your business. Call our West Palm Beach business attorneys at Pike & Lustig today with any questions you may have.