It is vital to keep a separate bank account for each of your entities. Doing so allows each company to pay for its own expenses and to collect its own income.

We often see taxpayers who own multiple entities transferring funds among the bank accounts. We understand your reason for doing, and it is crucial to keep proper documentation. The IRS requires loan agreements between the lender and borrower and, with an appropriate charge of interest. Doing so will help to preserve the legal entity designation when facing a lawsuit.

Keep in mind, your entity is a legal person and supposed to sustain trials only if you treat it as a separate entity. Mingling funds among entities or, not having contemporaneous legal documents of its own, will jeopardize the entity’s legal protection function and thus channel the liability to its owner.