Starting a business with a limited liability company (LLC) structure can be a good option to protect your personal assets. However, the veil of protection does not occur automatically. You must clearly establish a dedicated business bank account to maintain your liability shield. Understanding this rule can help your business stay compliant with Georgia laws.
What is commingling?
Commingling occurs when you pay personal expenses, such as groceries or rent, using the funds from your business account. This also applies when you deposit business revenue in your personal checking account. These practices blur the financial lines between you and your business, which is supposed to be a separate legal entity.
In Georgia, courts can pierce the veil when you fail to establish a separation between you and your corporate entity. If a creditor shows this lack of distinction with substantial evidence, you can be liable for business debts. This means that they can pursue your personal assets, such as properties, investments and vehicles, to repay debts.
What steps can you take to avoid commingling?
Maintain your veil of protection by following these steps:
- Create a separate account with the name of your company.
- Conduct regular audits to ensure compliance with financial separation practices.
- Track all types of transactions, regardless of their amount.
- Perform account reconciliation regularly to maintain accurate documentation.
Preventing financial mistakes is possible. If you are unsure whether your current practices comply with state laws, seeking legal advice can offer clarity on the matter.