Business and Personal: Good Idea to Keep Them Separate

Elena Volkova, Esq. on April 6, 2016

The other day I was watching a movie “The Intern” (I know, I am behind on current cinema), and of all the wonderful things that the movie talks about, one thing that I focused on was how liberally Jules, the CEO of the company, played by Anne Hathaway, was using a company’s employee to do her personal chores.

In the movie, Jules’s husband is “sick” and cannot take their young daughter to a birthday party. The CEO of a company turns around and asks Ben, the driver (who happens to be an intern) to take the daughter to the birthday party.

The intern is played by Robert De Niro. He takes the daughter to a birthday party, and completes a multitude of other personal tasks for the CEO.

What is the problem? you ask, This happens all the time.

I know, it does, but it does not make it right.

There are negative tax implications in this arrangement, as well as corporate governance problems.

The company that Jules is running is being funded by outside investors. They expect that their money is used in the business to grow profits. And Jules, as an officer of the company, owes a fiduciary duty to the shareholders to use the company’s resources for proper business purposes.

In order for her to use the company’s resources for her personal purposes, outside of her job description, the board of directors of the company must approve her compensation package, which may or may not include unusual perks like reimbursement for child care expenses and the use of the company’s driver for personal tasks.

These kinds of arrangements are usually frowned upon by the non-managing shareholders who do not get these benefits, and this often leads to lawsuits and shareholder protests.

They also create resentment among rank and file employees who do not get these benefits, and have to pay for child care out of their salaries (minus some fairly limited child care tax credits).

Even if you are single owner of your company mixing business and personal is not a good idea because writing off personal expenses on a business tax return is not allowed and may subject you to massive tax penalties.

Moreover, mixing business and personal expenses is one of the factors that allows potential business creditors to pierce the corporate veil and subject to shareholders to personal liability for business debts. I will be discussing the mysterious “Piercing the Corporate Veil” concept in my next few articles.

If any of the points I raise in this article make you wonder how it applies to your own company, please give me a call – my job is to keep you safe and out of trouble!

This material may be viewed as attorney advertising and does not constitute legal advice. This information does not create an attorney-client relationship between you and the author. This article strictly represents the personal views of the author on the date it was written and such views are subject to change without notice.

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