Don’t overlook this major risk when starting an LLC

On Behalf of | Feb 3, 2022 | Business Law |

The reason that people start a limited liability corporation (LLC) when creating a business is right in the name. The structure of an LLC limits the liability of the owner of the company.

They don’t necessarily have to worry about creditor claims affecting their credit if the business goes under or their assets being at risk if they produce a defective product that results in a lawsuit against the company.

An LLC can help an owner shield themselves and their assets from the risks that come from a business venture. Unfortunately, there is a common mistake made by new business owners that will potentially eliminate the protection that an LLC offers.

Be careful about commingling

One of the most important and earliest steps you should take when you decide to start a business is the creation of separate financial accounts for the business. If you use your personal bank account, debit card or credit card for business-related expenses, that decision could come back to haunt you years in the future.

Using your personal accounts for business transactions is a form of commingling your personal and business assets. If you eventually face major creditor claims or lawsuits, your prior financial activity could put your personal assets or future income at risk.

If the other party finds evidence of that prior commingling, they could use that to ask the judge to take specific legal actions. The judge can pierce the corporate veil because of your prior financial mistakes and hold you as the owner responsible for the liabilities of the LLC. Your home, your savings or even your future income could be vulnerable in that scenario. Understanding common mistakes can help you protect yourself when starting a new LLC.