May 31, 2010
Are checking or merchant accounts considered a legal asset to a small corporation?
JL asked:
My company is being sued for a large amount of money. I don’t have any assets in the name of my company and tax id number other than the checking/merchant accounts. These accounts don’t have a lot of money in them but all my income moves through them. If worse comes to worse and I get some judgement against the company can they somehow tap into these accounts? If so, should I try to change them in some way? One is with a bank and I believe it technically has my corporate tax id (used to be so i could cash biz checks). The other is with Paypal – so kind of remote. In my name and I have my company name on there too. Thanks for any advice and please be specific!
and no foolish answers PLEASE. I’ve already researched “piercing the veil” and if you really know what that is you’ll know it’s NOT the case here. It’s hard to prove AND I have not committed any fraud by simply using corporate checking accounts to pay off MOSTLY business debts with. I do with someone would explain the whole “freeze” thing. How can your checking accounts be “frozen” just because there is a judgement? I really thought only the IRS could do such things?
My company is being sued for a large amount of money. I don’t have any assets in the name of my company and tax id number other than the checking/merchant accounts. These accounts don’t have a lot of money in them but all my income moves through them. If worse comes to worse and I get some judgement against the company can they somehow tap into these accounts? If so, should I try to change them in some way? One is with a bank and I believe it technically has my corporate tax id (used to be so i could cash biz checks). The other is with Paypal – so kind of remote. In my name and I have my company name on there too. Thanks for any advice and please be specific!
and no foolish answers PLEASE. I’ve already researched “piercing the veil” and if you really know what that is you’ll know it’s NOT the case here. It’s hard to prove AND I have not committed any fraud by simply using corporate checking accounts to pay off MOSTLY business debts with. I do with someone would explain the whole “freeze” thing. How can your checking accounts be “frozen” just because there is a judgement? I really thought only the IRS could do such things?
Leave a Comment
Comments on Are checking or merchant accounts considered a legal asset to a small corporation?
The accounts you mention are the same as “cash on hand” that is shown on the balance sheet of any legal entity. Yes they are assets of the corporation, and yes, they are subject to any lawsuit against the corporation.
If you are the only shareholder, it is also possible to “pierce the veil” of the corporation and attach your assets, especially if it can be shown that your actions directly caused the claim in the lawsuit.
If you start hiding assets of the corporation, you have committed fraud. The attorney for the complaintants will probably do an asset search and if they find you have closed accounts with cash and transferred those assets to your personal use, you have opened yourself up to a whole lot of trouble.
If you advertise or otherwise are known to do business with PayPal, they will likely find that account also. It is possible that they will ask for a freeze on the cash accounts they find to keep you from disposing of the assets.
If there is any validity to the lawsuit, I suggest you start trying to settle. The legal fees will be astronomical if you fight it to the end – you can deduct these on your tax return, but you have to have the money do pay them in the first place. And, the tax refund will yield no more than 32 cents on the dollar, so count 68 cents lost forever.
The original lawsuit always asks for way more than they expect to get, so see what the bottom line is, and negotiate down from there if possible — doesn’t appear that you have unlimited funds to pay the lawsuit.
If there is no validity to the suit, be sure that your attorney asks for the complaintant to pay your legal fees because it is a frivolous lawsuit.