Idaho Business Law Advice on Handling Corporate Accounts

By Lane V. Erickson, Idaho Business Attorney

Creating a corporation for your small business is no easy task. There are several complicated decisions that need to be made which could have an impact on how your business moves forward. These include who the owners of the business will be, how the business will be managed, and how business accounts will be handled.

Because of the complications that could arise when starting a small business and creating a corporate entity, we suggest that you consult with a qualified business attorney to help you. At Racine Olson, we use a team approach when it comes to assisting our business clients in meeting all of their legal needs including setting up and operating business. Our team of Idaho business lawyers includes partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of the attorneys on our team have earned the highest ratings possible from all legal ranking services including Martindale Hubbell, Justia, and AVVO. Our attorneys are knowledgeable and experienced in assisting clients meet their small business needs, including how to properly handle corporate accounts.

If you haven’t yet spoken with a business attorney about your business needs, we encourage you to contact us for a free 30-minute consultation. We will answer your questions and discuss ways we may be able to help you with your small business.

The purpose of this article is to talk about how to properly handle corporate accounts to avoid problems that could arise in the operation of your small business. Please keep in mind that this article is just a summary of the things that you should be concerned with. If you have questions, we encourage you to speak with a qualified and experienced attorney.

When it comes to corporate accounts the very first thing you should do is make sure you actually set up a corporate account that is separated from your personal accounts. In other words, obtain a tax ID number from the IRS which is known as an Employee Identification Number or EIN. This acts like the social security number for your business or Corporation. You use the EIN to go to a bank and set up a new bank account for the corporation itself.

Never, ever, under any circumstances, should you ever, (did I mention EVER) use your personal accounts as your corporate business account. The whole reason you have gone to the trouble to set up a corporation in the first place is to separate liability for the business from yourself. In other words, you want to make sure the liabilities of the company do not fall on you personally and individually.

If you do not follow corporate formalities, including setting up a separate bank account for your corporation, then the law in Idaho will say you may not have actually set up a corporation at all. Rather, the law may find that your business operation is actually being done personally, rather than through a formal corporate entity. If this happens, then all the work you went into setting up the corporation in the first place will be for nothing.

When it comes to corporate accounts, and personal accounts, you want to make sure you are not commingling money. This is a fancy way of saying that you were using the corporate accounts to pay for personal expenses.

For example, if you have a house payment coming up that needs to be paid, you should never use the corporate checkbook to pay for your house payment. Rather, the proper way of doing this is to transfer money from the corporation to you as an owner either as a salary, as a draw, or as a dividend payment. Once the money is in your personal account, you can then use that to pay your house payment like normal.

As mentioned above, it is important that all corporate formalities are followed. If any liabilities arise within the corporation, all corporate formalities must have been followed during the operation of the business in order for the corporate shield to exist to protect you personally from the liabilities of the corporation. When monies are commingled, the law in Idaho says you have not followed the corporate formalities that need to be followed in order to maintain the separate corporate status of your entity. When this determination is made, then all corporate liabilities also become your personal liabilities.

By simply creating and maintaining separate bank accounts for your business and for you personally and making sure that monies are not commingled you are following basic corporate formalities that will keep your corporation separate from you and will protect you from any corporate liabilities that arise.

The final thing you should consider when it comes to handling corporate accounts is to make sure you have safeguards in place concerning the handling of corporate money. If you are the only owner of the corporation but you have hired individuals to help you with bookkeeping, paying bills, handling accounts receivable, or accounts payable, then there should be safeguards in place to make sure that this individual cannot embezzle money from the company.

I have assisted countless small businesses who have not put any safeguards in place that have resulted in employees embezzling funds from the corporation. This usually begins innocently enough but sometimes results in the loss of hundreds of thousands of dollars over the course of many years.

One of the simplest safeguards is making sure that the person who keeps the corporate bookkeeping records for all accounts is not the same person who signs checks. Additionally, having a double signature requirement on all checks is a fantastic and easy way to make sure funds will never be embezzled from a corporate account. Finally, having an annual audit or review by an outside company, such as a CPA, or an accounting firm is a great way of ensuring that monies will not be taken from corporate accounts incorrectly.

It is true that corporate accounts can be complicated. However, by just keeping a few simple things in mind, you can usually avoid mistakes that can cause irreparable harm for your corporation or for you individually. If you have questions about how to handle your corporate accounts, we can help. We have assisted numerous corporate clients in the creation and operation of their business entities, including handling corporate accounts, and we are confident we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.