Anyone who has even learned about starting a business will tell you that it is a risky undertaking. A significant number of new businesses fail in the first few years, even if the idea for the company is excellent. All the planning in the world will fall far short of the harsh realities of modern capitalism.
Factors ranging from a failure to set funds aside for tax payments to unforeseen product liability claims can lead to a company closing. When businesses fail, there may be thousands of dollars in past-due bills or legal claims against the company. Although those liabilities theoretically belong to the business, the owner who operates the company could have some personal liability as well.
If the owner doesn’t take the right steps early when starting the business, they may eventually find their assets at risk over company debts or lawsuits. If you intend to start a limited liability corporation (LLC) to shield yourself from liability for the company, you need to separate your business funds from your personal finances early on in the process.
Commingling personal and business resources is dangerous
You can start a business checking account well before you actually open for business. Doing so helps solidify the legal distinction between your company and you as the owner.
If the business is successful, there won’t be any major consequences for minor financial mistakes when first starting the business. However, if the company fails, creditors or plaintiffs in product liability or breach of contract lawsuits will look for any opportunity to pursue your assets if the business doesn’t have enough to pay them.
When you use personal accounts for business matters, that commingling may make your personal assets vulnerable later. Those seeking compensation from the business in court can ask to pierce the corporate veil and hold you as the sole member of the LLC responsible for its obligations.
A good start can lead to great success
You absolutely don’t want to plan your business around the possibility of failure, but avoiding commingling also protects your company when it is highly successful. There are numerous steps that you can take when first starting a company to limit your personal liability if the company fails or faces legal claims later.
Having the right advice and support when starting a new business will increase your chances of success while limiting what you stand to lose.