Don’t Cross the Streams

When talking with people starting businesses, one question that we get is a lot is “How do I limit my liability?”.  First, we talk about creating a business entity.  And don’t forget about insurance.  But, one thing we always talk about is “Don’t cross the streams. It would be bad.

By that, we mean keep your business money and your personal money separate.  That means separate bank accounts and separate books.  It definitely means pay your business debts using your business account and your personal debts from your personal account.

If you have two businesses, pay each one separately.  If you are going to give money to one from another, it has to be a loan – yes, with interest.  These are separate legal entities.  You wouldn’t loan your neighbor’s business money without interest, which means you shouldn’t do so between your own.

The more you treat the entities as distinct from you and each other, the more likely courts will follow your lead and do the same.  So, unless you are faced with a giant, flaming marshmallow man and a gateway to Gozer, don’t cross the streams.

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