Legal Question in Business Law in California

Re: Commingling a LLC

It's not helpful that you did this, but not necessarily fatal. You might get away with using the same account if you kept careful records and did not let either the company's portion of the balance or the personal portion of the balance go negative. There is no single act or formula that clearly distinguishes operation of a business entity as the alter ego of its owner from proper maintenance of a separation. I think the main factor is not what the owner did, but whether what the owner did negatively affected the creditors of the business.

Re: Commingling a LLC

Commingling of funds in any way absolutely creates a problem. The risk is that if you are sued and alter ego is alleged, which is not uncommon, this situation will be scrutinized. This creates increased litigation costs to dig into the account and determine if there was any wrongful handling of finances. Since the account also has personal transactions, this lets someone into areas of your personal life they would not otherwise be able to access. You may end up filing papers in court to prevent this, again at additional cost. The alleged commingling then becomes a positive factor in a group of factors to evaluate whether the entity protection against reaching your personal assets will stand. Now, the good news is that you have identified the problem, you don't indicate any current or potential litigation, and you are trying to operate your business correctly. Fix the problem and let it fade into history!! Sometimes lawyers form entities and just wave clients out the door. It's a little like having a new baby and no idea how to care for it. Personally, I send an entity formation letter to each client that explains all the potential factors for piercing the corporate veil as well as other new entity parent information. You have to treat the entity as if it were a person completely separated from you in identity. That's the simple way to think of alter ego. Another common problem I run into often with clients are company presidents and LLC managing members who sign documents without including those titles under their names. It makes it look like they are providing personal assurances rather than acting for the entity. So, life will probably forgive you for this little whoopsie, but go and comingle no more!!

Re: Commingling a LLC

You're guilty of commingling funds and risking having someone sue the company and 'pierce the corporate veil' to get to your personal assets in the suit. You're also probably guilty of tax code violations. I suggest you get legitimate tax advice and clean up your operation.