Maintaining Separate Accounts

Avoid Commingling With Personal Accounts

Commingling of your business/corporate funds with your personal funds can lead to arguments by creditors of your business that your corporation is being operated as an "alter ego." If a creditor successfully makes this argument in a court of law, a court could disregard your corporate entity and order the attachment of your personal assets for corporate liabilities and obligations.

Importance of Separate Accounts

You must set up a separate banking account for your corporation. All revenues received from the corporation's line of business must be deposited in the corporate accounts. There should be no commingling of the corporation's funds with your personal accounts. Additionally, all expenses related to the corporation's business must be paid from corporate accounts.

Customer Invoices

You should also make all of your invoices to customers payable to your corporation. This information should be clearly contained on all invoices. You should also be certain that your merchants account is set up under the corporation rather than your individual name.

Additional Funding to the Corporation

If it becomes necessary for you to place additional revenues in your corporation from your personal account in order to meet startup or ongoing corporate expenses, the nature of those payments from you to your corporation should be clearly documented. Check with our accountant to determine how those payments should be characterized. There are generally two choices of how to characterize payments from you to your corporation; (1) additional capital contributions, or (2) loans from you to your corporation. Normally, it will be beneficial to treat these additional payments as loans from you to your corporation. If this is the chosen character of these payments, you should appropriately document these payments through execution of promissory notes and perhaps security agreements.

Seek Guidance From Accountant

Remember to seek guidance from your accountant on how to characterize these payments in your particular instance. Then, you should completely document the nature of these payments through execution of appropriate documents such as promissory notes, security agreements, or additional capital contributions.

Disbursements From The Corporation

Disbursements that are made from the corporation to shareholders and others should also be appropriately characterized. There are generally three ways that these payments might be characterized; (1) as loans from the corporation to the shareholders, (2) as payment of compensations, or (3) as distributions of dividends on shareholdings. Again, it is important to consult with your accountant concerning your desired characterization of payments from the corporation to the shareholders. These choices have significant tax and other legal ramifications

How Our Small Business E-Book Can Help

Our SMALL BUSINESS PACKAGE provides you with a number of documents to assist you in appropriately documenting these payments which you can use once you obtain advice from your accountant regarding the appropriate nature of these payments.