Personal Use of Business Funds: How Is It Prosecuted? - Los Angeles Criminal Defense Blog (2024)

FAQs

What happens if I use my business account for personal use? ›

Consequences can include the closure of your account, personal liability, tax implications, more complicated bookkeeping and a negative impact on your personal and business credit.

When business owners use business funds for personal expenses, it is bad practice that can lead to operational, legal, and tax problems. Using company funds as a personal piggy bank for one's own benefit is not only a breach of fiduciary duty, but also unlawful.

These include: Using public funds for your own use or the use of another person. Loan public funds or make a profit from them, or use public the funds for any unauthorized purpose. Knowingly maintaining a false account, make an entry or erase an account.

For example, a CEO entrusted with funds meant to be used to pay company expenses but uses the money instead to pay their personal credit card bills. The CEO can be charged with both misappropriation of funds and embezzlement.

However, you are not paid like a sole proprietor where your business' earnings are your salary. Instead, you are paid directly through what is known as an “owner's draw” from the profits that your company earns. This means you withdraw funds from your business for personal use.

An owner's draw, also called a draw, is when a business owner takes funds out of their business for personal use. Business owners might use a draw for compensation versus paying themselves a salary.

Penal Code § 424 PC makes it a crime for a public officer or a trustee of public funds to misappropriate the funds for improper use. A conviction is a felony punishable by up to 4 years in jail or prison, fines of up to $10,000.00, and permanent disqualification from holding public office.

Legal Definition of Embezzlement

Embezzlement is the misappropriation of the assets that were entrusted to someone. Embezzlement is a white-collar crime, meaning that it is typically nonviolent and involves a violation of trust that someone has been given.

Embezzlement, misappropriation of funds, fraud… these are all terms we're familiar with and are examples of white-collar crimes which carry serious consequences including losing your job, company fines, director disqualification and in the most serious cases imprisonment.

What is an example of asset misappropriation? ›

Asset misappropriation fraud could include any of the following: Embezzlement, where accounts have been manipulated or false invoices have been created. Deception by your employees. False expense claims.

Examples of misuse of company assets may include using company equipment or facilities for personal use, diverting company funds for personal gain, stealing company property or information, or engaging in fraudulent activities using company resources.

Even if your financial institution doesn't say this (check your depositor agreement), you still shouldn't use the same checking account for business and personal expenses. All businesses, even very small ones, should keep these finances separate.

Is it illegal to put personal expenses on a business credit card? No, it is not illegal and the credit card police won't come after you if you slip up (on purpose or accidentally). Think of it like taking the good pens and notepads home from the office.

The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.

It is essential to separate personal and professional expenses to maintain financial transparency. 2. Grocery Shopping for Home: While it may be tempting to utilize a business credit card for grocery shopping, it is best to avoid this practice. Groceries for personal use should always be paid for using personal funds.