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cocoy
02-03-2009, 03:11 PM
Is it fine for a customer to write a check, paid to, the one owner of an LLC instead of the LLC's name?

vangogh
02-03-2009, 05:50 PM
Good question and one I'm curious about myself. I think the answer is the check should be made out to the company and not the owner (is there technically an owner with an LLC?)

From what I understand it's important to keep personal and business completely separate with an LLC or you risk losing the personal protection it grants you. If you accept checks in your name or write checks for business from your personal account it could be argued no real corporation exists.

Take what I say with a grain of salt though until one of our members with more experience in the legal side of things weighs in.

orion_joel
02-03-2009, 07:48 PM
Maybe Evan May see this one.

At least in Australia, if you are receiving money for the business it should be made out to the business and deposited into an account in the name of the business. This stands even for a sole trader operating under a business name, as the tax office in Australia is cracking down on businesses operating without a designated business account. This may differ in the US though

CraigFLA
02-04-2009, 08:09 AM
From my experience, and I'm not a lawyer, things like this usually don't make any difference in the real world. I cash checks made out to "Mickey Mouse" and signed by "Spiderman" and as long as I stamp it for deposit into my bank account and it clears, life goes on. Certainly, in the strictist legal sense AND if someone would challenge this AND the case is based on personal vs. private funds, lawyers would try to use this as a lever to get what they want. I suspect even in those cases it wouldn't always work. More important than who a check is written to is who the invoice is made out to. In these days where customer accouns go to collections or small claims court, you need to be able to prove who the item was sold to.

Business Attorney
02-04-2009, 09:52 AM
Ideally all checks should be made payable to the business. Certainly if a check is made payable to an owner it should be endorsed to the business and deposited in the business account. As long as the latter step is done, I don't think that an occasional check payable to an owner will have any ill effects.

I did have one personal experience with a bank refusing to accept a third party check for deposit in a business account because the person who it was payable to was not on the account. I have an apartment building and keep a separate account in the name of the building. Tenants often make checks payable to the management company rather than to the building. Our bank refused to accept those checks for deposit, even when correctly endorsed, until we added the manager to the account.

This is the only time I have ever seen that happen. In fact, I once mistakenly mailed a payment payable to the Chicago Tribune for my newspaper subscription to my local utility company. The check was deposited by the utility company in its account and went through the system without a hitch.

OldJack
02-04-2009, 10:58 AM
If the LLC has elected to be taxed as a corporation the check issued to an individual could cause an IRS audit as the payer may issue a 1099Misc, box 7, non-employee tax form that would indicate taxable income and self-employment tax reporting required on the individual's 1040 tax return. The individual would then have to file the same type 1099 to the corporation in order to avoid the income on their 1040.

billbenson
02-05-2009, 03:04 AM
A bank manager told me to do the deposit via a ATM in one case where the check was made out to the wrong name. In my case, it was made out to the manufacturer and I deposited it using my company name (a DBA) and my account number. It went through.

Evan
02-05-2009, 02:03 PM
With a business account, you can generally deposit a check made to anybody with it. Not so much with a personal account. As noted by Jack though, it may trigger a 1099-MISC with self-employment income. Some banks will give you an issue, which happened in David's case. Though I reckon if the deposit was then made via the ATM, that the problem would have "went away".

I think the fundamental problem with a check made payable to an owner and not the company is the fact that the payer believes it is YOU completing the work and not your business. That can become an issue, especially if you deposited the check and something broke and a person got hurt (for example).

cocoy
02-12-2009, 02:35 PM
That can become an issue, especially if you deposited the check and something broke and a person got hurt (for example).

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Good point! If there's any liability issues it can get bad.