When a Corporation is formed, the Corporation has a separate legal identity from its individual owners. The Corporation must have its own bank accounts and must file its own tax returns with the Internal Revenue Service. Owners of the corporation must maintain their own funds separately and should not mix personal money and assets with business money and assets.
Co-Mingling Funds affects your Corporation adversely because you are not maintaining the legal requirements of having a separate Corporation. As a result, you could lose the liability protections that being incorporated provides. You could also lose some of the tax benefits that may be associated with forming a corporation. Before you Co-Mingle your personal funds with your business, you need to consult with an experienced Scottsdale Arizona business law attorney. Lotzar Law Firm, P.C. can advise you on how to follow your obligations for maintaining your Corporation as a separate legal entity so you do not put the benefits of incorporation at risk.
How Co-Mingling Funds Affects Your Corporation
Co-Mingling Funds means that you do not maintain entirely separate financial dealings with your business. For example, your business should have a separate bank account and all profits and income from the business should be deposited into that account. Money should be withdrawn from the business account only to provide a paycheck for employees under the terms of an Employment Agreement and to pay reasonable business expenses necessary for the costs of operating your organization. You should have your own separate personal bank account that you deposit money into and withdraw money from for non-business expenditures.
If you Co-Mingle Funds, you fail to maintain a strict separation between your business assets and your personal assets. For example, you might deposit some of your own money into a corporate account to make payroll when your account balance is low, without properly documenting that money as a loan or an investment in the Corporation. If you do this, you have Co-Mingled your Funds and you have put the status of your Corporation as a separate entity at risk.
Co-Mingling Funds can also occur if you take money out of your business and use it for personal expenses. Money should be withdrawn from a company only when it is paid out as part of your paycheck, or as a distribution or a dividend. You cannot just withdraw money from your business bank account because you are running short and then put it back in whenever you feel like it. You must ensure that you keep your personal funds separate and that you treat the business as if it was owned by strangers.
If you have a small privately held company and you Co-Mingle Funds, you could lose the liability protection a corporation provides because the Corporate Veil could be pierced. Essentially, this means that you didn’t keep up the necessary formalities so your corporation wasn’t a real corporation at all. As a result, you could find yourself personally liable for company debts or judgments. You could also lose the tax benefits of incorporating, such as avoiding self-employment taxes on distributions from an S-Corporation. If you work for a company with multiple owners and you treat the business accounts as your own, you could also find yourself facing charges of embezzlement or sued for a breach of your duty to the company.
You need to understand the rules for incorporation and ensure you maintain all formalities necessary to keep your corporate status. Call Lotzar Law Firm, P.C. today to learn more.
- How Often Do I Have to Re-Certify a Tax Credit Tenant’s Household Income? - November 12, 2015
- Property Tax Abatement vs. Property Tax Exemptions – GPLET - November 12, 2015
- Can You Restructure Your Business Under the Arizona Entity Restructuring Act? - November 5, 2015
