Should I Have a Separate Bank Account Or Credit Card For My Business?

Should I Have a Separate Bank Account Or Credit Card For My Business?

Should I have a separate bank account or credit card for my business? Generally, the answer is going to be yes, 100% yes. 


If you’re a sole proprietor

If you’re running your business as a sole proprietorship, it means that it’s just you. You haven’t set up or formed a corporation or an LLC or a partnership. It’s just you and you own the business. Maybe it’s Joe’s mechanics and you don’t have any employees. In that case, there’s probably no reason to have a separate account, other than for accounting purposes and tax purposes. It’ll be easier to track those records. 

If you have a corporation, an LLC, or a partnership

But for liability protection, if you have a partnership, a corporation, or an LLC, you definitely need that, 100%. Because if you set up a corporation or an LLC or certain partnerships, and you don’t keep those accounts separate, then you can face liabilities for the business on your personal end. 

The business can get sued and they come after you personally. You may say, “Well, how can that happen? I formed a corporation or I formed an LLC. This is my business over here. You can’t come after me.” They can and they often do. 


If you get sued

I represent clients in court all the time that have a corporation. They got sued, the corporation was a defendant and they personally were a defendant, their spouse personally was a defendant, and their family trust personally was a defendant. 

All of these things get pulled into court and they see, “Hey, maybe this will work. Maybe I can figure out a way to go after their house. Maybe I can figure out a way to go after their car or their retirement account or their savings, their brokerage account because the business doesn’t have a lot of money.” Or maybe they don’t really know what assets it has. 

Piercing the corporate veil

So here’s one of the factors that’s used by courts in California: “Do we want to what’s called pierce the corporate veil or go and take a corporate liability, an obligation, a debt of the business? Do we cross from the corporation through the line between the personal and business, and attack the personal assets and come after them?” 

And that’s when you pierce the corporate veil. Basically, you say the corporation is liable, but the owners of the corporation are liable as well, and that’s when you pierce the corporate veil. And one major factor is did they follow proper procedures? Did the business segregate or separate money? Are they treating the business bank account as their personal checkbook? 

If you didn’t separate your business and personal finances

That’s what a court is going to look at. Let’s say you don’t have a separate business bank account and separate business credit cards where you can separate out the spending of the business versus your personal spending, and you just mix them all together. 

In that case, a creditor and their attorney will have a field day. They’ll tear that apart and say, “There’s no corporation here. They’re the same thing. Their money is going back and forth. They don’t treat them as separate entities — the corporation over here and the individual owner over there.” 

So, if you don’t separate those then you’re going to potentially face a huge liability if your business ever gets sued. It also makes it easier just from an accounting and tax standpoint when the books are kept clean and separate. 

What you must do

You’ll probably save money with your CPA if they don’t have to figure out, “Okay, is this a personal expense or a business expense?” Just keep it all separate. It’s much easier. Once you have it all set up that way, you train yourself, “Okay, this is a business expense, I’m using this business card. This is a personal expense, so I’m using my personal card.” 

Once you’ve trained yourself how to do that, it’s not that difficult to do. You should definitely have separate accounts for business and personal. In some cases, if it’s a new business, you might not be able to get a business credit card just in the corporation or LLC’s name. But you should still try and you still need separate bank accounts. You can do that whether your business is brand new or not. It’s highly recommended.

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