Why do I need to setup a separate bank account for my entity?
In this audio snippet, you'll hear about:
- In order to be observed as a corporation you have to observe corporate formalities
- One of the factors that courts typically use to pierce the corporate veil is when shareholders co–mingle funds
Audio Transcript
Travis:
Why do I need to set up a separate bank account for my entity?
Yosef:
Oh, this is really, really important, Travis. Really important at the
state level. In order to be considered a corporation, you have to
observe corporate formalities. It's essential that every corporation
conduct itself as a corporation.
One
of the factors that courts typically use to pierce the corporate veil,
a.k.a. to remove the limited liability of having a corporation, is when
shareholders or officers commingle funds. When they mix their personal
funds with the funds of the corporation. It is a major no–no.
It's
interesting. I've actually sat down with a supervisor at the IRS who
claims that he sees it all the time. But I can tell you this. It's
really bad to do that.
If in fact a corporation were to
commingle funds with personal shareholders, that would be a very strong
signal that corporate formalities are not being observed, and it would
really give courts the justification to dissolve the limited liability
that the corporation would ordinarily have been entitled to.
Travis:
And that's just the worst thing that could happen to your entity.
Yosef:
Actually, there are worse things. But that's pretty bad.
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