I purchased my first property a few years ago into an LLC, and have acquired a few more within the LLC since. I want to make sure that I am doing everything right to protect the limited liability status of the LLC. I am confident in my bookkeeping as it relates to the income/expense tracking schedules I utilize (all basic excel based), as well as what is reported on tax returns. What I am unsure of, is how important the flow of cash through bank accounts is. I have a separate business bank account for the LLC. When I started out, it was probably a bit sloppy. Even more recently, as an example, I accidentally deposited 2 rent checks into my personal account rather than the business account. I quickly transferred that money between the 2 accounts to get it in the right spot, but I'm curious if this could cause an issue with "piercing the veil" by commingling personal and business funds. If this simple mistake wouldn't, what would/could represent an issue? Or does the bank account activity not matter as much as long as it's reported on tax returns appropriately?
As a follow up, if this, or other minor infractions were an issue, what would be my course of action to correct? Comb through every single transaction over the last 4 years (since the LLC was created) and write up some sort of documentation? Or just create a new LLC, deed the properties over to that LLC, and start all over again fresh (making sure I am PERFECT going forward)?
Lots of questions.... thanks for your advice!
@Daniel Wolz That's a good question for your attorney. It sounds like you are conducting business in a prudent manner to protect the limited liability status of your LLC. As for depositing rent checks into your personal account, and then transferring those funds to your LLC once you discovered the error, I think that shows that you are intending to maintain separation between yourself and your LLC. The issue that I see with your structure, is that you have more than one property in the same LLC. So, if someone gets hurt on one of your properties and sues you, then your other properties may be at risk. You could consider moving each property into its own LLC. I am assuming that you have adequate insurance to protect you, but separating the properties adds another layer of protection of liability.
@Daniel Wolz in general an inadvertent mistake should not cause the piercing of the corporate veil. That assumes it is quickly corrected and accounted for properly. Of course a good attorney can look up actual court precedents in your area to see what is accepted and what is not.