Minimizing Personal Liability for Business Operations

Are your personal assets fully protected from your business? If not, this should be at the top of your to-do list to reduce the risk of subjecting your personal assets in the event your business is sued. The comingling of business and personal expenses opens the door to unfavorable judgments taking your personal assets, such as retirement accounts and vehicles.

In order to properly protect these assets, have a separate business bank account, retain the proper insurance coverage, separate business and personal transactions, and keep receipts.

Have a Separate Business Bank Account

Your business should have bank accounts that are separate from your personal accounts. These accounts should be in your business’s name and have all income and expense items run through there. This not only makes tax time a breeze at year-end, but it also shows the courts that there is no commingling of expenses.

Credit card accounts should follow the same rules. If your business needs a credit card, make sure the business’s name is on there and not your personal name. Everything associated with your business should be kept separate.

Retain the Proper Insurance Coverage

Insurance coverage is one of the key factors in reducing your personal liability risk for business operations. Your business should be properly insured with high enough coverage limits to cover any damages. Talking with an insurance agent can determine which policies are right for your business.

Consider having multiple insurance policies, such as one for negligence and one for product malfunction. This not only covers all of your bases, but you also may see a bundled policy discount, reducing your premium payments.

Separate Business and Personal Transactions

All personal transactions must be separated from business accounts. Personal transactions should be run through your personal checking account while business transactions should flow through the business bank accounts. Following this simple rule will save you time and money if your business is sued.

If the comingling of expenses does happen, be sure you are classifying the personal transactions as either a contribution or distribution hitting member’s equity. This ensures that there are no personal expenses within the financial statements. Catching these transactions early can be done with monthly reconciliations of all business bank accounts.

Keep Receipts

Receipts should be kept for at least 3 years, which is the length of time the IRS can go back and audit your business tax returns. You should keep receipts for all business purchases to substantiate your expenses. For example, your accounting software may show a charge for Menards, but is that a business or personal expense? By having the receipt that breaks down each line item, there is no room for discussion on if the expense is business related. Either scan in receipts to a folder on your computer or designate an area in your office for receipts.


Minimizing your personal liability for business operations is important, especially for sole proprietorships and single-member LLCs. For more information on how to properly segregate expenses, reach out to the team at Gordian Financial who can work with you to find the right solutions for your business.