Where Others See Obstacles, We See Opportunities

  1. Home
  2.  → 
  3. Business law
  4.  → Even small business owners shouldn’t “pierce the corporate veil”

Even small business owners shouldn’t “pierce the corporate veil”

If you own a small business, you may have invested some of your personal funds to get started or get through a rough patch. Likewise, you may have used your business account to make a personal purchase. Either of these actions results in the commingling of business and personal funds.

Even if you have a sole proprietorship, this can cause a host of legal and financial issues. Let’s look at a few of those.

Why you should never commingle your business and personal assets

First, if your business is set up in a type of structure where you and your partners can’t be held personally liable by a plaintiff who has an issue with your business, commingling personal and business funds takes away that protection. A common phrase for that is “piercing the corporate veil.”

If you have one or more business partners, you have a fiduciary duty to them and to your business to act on their behalf – not in your own self-interest. If you use company money for personal expenses, you’ve violated that duty and could face serious financial and legal penalties.

Even if you have a sole proprietorship, it’s wise to keep your personal and business finances completely separate. It makes for clearer financial statements and records. This will lessen the chances of serious tax misreporting. It will also allow you to more clearly provide information about your business’s finances if you decide to seek a loan to grow your business. 

If you’re facing potential legal issues as the result of commingled personal and business funds, it’s crucial to seek legal guidance. Don’t underestimate the possible consequences to both your business and personal finances.