Co-mingling of assets involves the owner using personal resources for business purposes, such as personal loans or credit cards. Co-mingling is also a primary basis upon which courts apply the alter ego theory meaning a person starting a corporation or LLC just for protection ( when a creditor seeks to pierce the veil of limited liability or corporations). When the rules regarding separation and documentation are followed, co-mingling of assets should not occur.
Especially in the case of the small business owner, co-mingling can occur in other instances, because assets and expenses can have mixed (part business, part personal) uses. Ultimately, adequate documentation of the business purpose of a transaction can ensure that no co-mingling will occur.
The small business owner should be aware of a fact pattern that afflicts many small business owners, one that can prove fatal from an asset protection perspective.
Unfortunately, it is also likely that, in this situation, the business will be experiencing financial difficulties. This makes it more likely that the business will undergo scrutiny from creditors who are not being paid. This scrutiny may take the form of a lawsuit, wherein the creditors attempt to prove that the alter ego theory should be applied to the owner and the entity.
Lease Financing protects businesses keeping the LLC and Corporation shields intact.