The Corporate Veil

Avoid co-mingling personal & business income and expenses or risk piercing the corporate veil.

Think of the corporate veil as an invisible shield which separates you and your personal assets from you and your business assets. If you co-mingle personal and business, you risk piercing the corporate veil and the protections it may afford to you and your assets. For instance, if your business becomes liable because of some business arrangement which goes awry and you’ve pierced the corporate veil, both your business and personal assets may be at risk and used to satisfy the liability especially if your business assets are insufficient to satisfy the liability.

Establish a distinct legal business entity (ex: LLC) in lieu of operating as a sole proprietor. A distinct legal business entity like a LLC will generally afford better limited liability protections so long as you don’t pierce the corporate veil.

Open a separate business checking account and business credit or charge card in the name of your legal business entity and use these accounts for legitimate business purposes only. Keep good records & documentation of all financial transactions. Use proper accounting / finance software to track business income & expenses. Follow best practices to keep your business on the straight and narrow.