To what extent is my company mine?
When we say company, we mean LLC. A limited liability company is a combination of elements of a company of individuals and a company of capital, and therein lies the reason for the greatest number of this form of doing business. Hence, for each founder, one of the determining criteria for establishing a limited liability company is not the presence of liability for the company’s obligations with personal property, but bearing the risk of the company within the amount of funds invested in the company. In addition to this specificity, this form of company cannot publicly issue shares, as a joint stock company does – in order to raise capital, and for this reason the most common case is a company with a small capital and a small number of participants. Usually these are one-person companies.
In practice, we can often hear the statement of the founder-owner of a business company who thinks, “It’s my company, I can do whatever I want”. But, is it so?
First, everyone who establishes an LLC proceeds from the idea that he wants to implement and, accordingly, with the goal of making a profit by satisfying the market. At the very beginning, the individual who establishes an LLC is faced with the reality that “his LLC” is part of a large economic system. In this unique economic system, there are certain rules that are governed by laws that reduce absolute freedom to relative freedom.
Second, the most common case is when the founders use the assets of the company they founded to satisfy their personal needs. Moreover, they equate these funds with their personal property and believe that they can use them without restriction.
Thirdly, examples of the use of LLC funds for personal needs are quite common in practice, here are some of them:
– The owner of company does not own a company car, i.e. he does not have a car registered in the books as the company’s main property, and there is no lease agreement for movable property, on the basis of which he could use the company’s funds for the current maintenance of the leased movable property, and he uses services or purchases goods to maintain such a car
– The owner pays from the account of the company for the services of a lawyer for a private case
– The owner pays for travel services from the account of the company
– The owner purchases furniture or appliances for the home, etc. from the account of the company
Fourth, there is really no law that prohibits the individual – owner of an LLC from using all of the above mentioned cases. The only question is what the price of that benefit is, and that price is determined by the tax authorities by deciding the tax aspect of the realized income.
Fifth, when evaluating and determining the tax aspect, it is very important to consider whether or not the founder works in his company. This is important because of the difference in tax treatment, i.e., it depends on whether it is employee earnings or capital income. The Tax Administration very rarely has a procedure to confirm whether it is capital income or individual income, so the most often it chooses the regime of income-tracking tax.
Thus, the company is entirely yours, subject to compliance with the relevant laws and payment of taxes.
For the part about keeping up with the law and taxes relativity, the Creative Finance team is at your disposal.