Taylor Scott
While not a strict requirement, opening a business bank account is one of the most important steps you can take when starting a business. This is because it helps you stay legally compliant and protected, and it also provides benefits to your customers and employees. Business bank accounts offer perks that standard personal accounts don't, such as limited liability protection by keeping your business funds separate from your personal funds. To open a business bank account, you'll need to provide certain documents, such as a business license, Employer Identification Number (EIN), and personal identification. Some accounts may also require a minimum opening deposit.
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What You'll Learn
Business bank accounts are necessary to keep finances separate
While it may seem more straightforward to keep your personal and business finances together, it is essential to keep them separate. This can be achieved by opening a business bank account.
Firstly, a business bank account helps you stay legally compliant and protects you from liability and debt. A sole proprietorship is not a separate business entity, so under this structure, a business owner is responsible for the liabilities and debts of the business. However, partnerships, limited liability companies (LLCs), and corporations all offer varying degrees of personal protection from liability and debt. For instance, in an LLC, "generally no one can come after the owner's personal assets," according to Eric Calaman, a business executive with Bank of America.
Secondly, separating your business and personal finances gives you an accurate picture of your business cash flow. It will be easier to manage your balance sheet—income versus expenses—when you have a single business account statement to review. This can also help you better understand your business's financial health and forecast your future cash flow.
Thirdly, keeping your business finances separate will make it easier to build your business's credit history. Establishing accounts in the business's name will help to establish the business as a separate entity with its own credit history, distinct from that of the business owner.
Finally, a separate business bank account will make it easier to prepare your tax statements. You will be able to quickly find the relevant information for your tax statements when you have a separate business checking account.
When you are ready to open a business bank account, you can go online or to a local branch to begin the process. You will need to provide certain documents to verify your business and the individuals associated with it. These documents may include a business license, Employer Identification Number (EIN), and information about your business owners and structure.
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Different business structures require different documents
While it is not mandatory to have a bank account to start a business, it is highly advisable. A business bank account helps you stay legally compliant and protected. It also offers benefits to your customers and employees.
When opening a business bank account, different banks may require different documents. However, some common documents that banks ask for include:
- Business license
- Employer Identification Number (EIN)
- Certificate of Registration or comparable documentation issued by a government agency
- Governing documentation for your entity, such as meeting minutes documented on business letterhead
- Information about your business, its owners, and any entities with ownership
- If your business has multiple owners or executives, they may all need to be present or complete and notarize the required forms
Different business structures also require different documents. Here are some common business structures and their respective requirements:
- Sole Proprietorship: This is the most common and simplest form of business, where a single individual operates without the necessity of formal organization. If the business is conducted under an assumed name (a name other than the owner's surname), an assumed name certificate (often referred to as a DBA) should be filed with the county clerk in the county where the business is located.
- Partnerships: Partnerships are ideal for multiple owners, professional groups, or testing ventures. There are two common types: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have one general partner with unlimited liability, while LLPs offer limited liability to every owner. Partnerships are usually documented in a partnership agreement.
- Limited Liability Company (LLC): LLCs offer protection from personal liability and allow profits and losses to be passed through to personal income without corporate taxes. However, members are considered self-employed and must pay self-employment taxes. LLCs may have a limited life in some states, and their management structure must be stated in the certificate of formation.
- Corporations: Corporations offer strong protection from personal liability, but they are more costly to form and require extensive record-keeping and reporting. Corporations pay income tax on their profits, which may be taxed twice—once when the company makes a profit and again when dividends are paid to shareholders. Corporations have an advantage in raising capital through stock sales and can continue operating independently of their shareholders.
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Shop around to find the best rates and fees
When it comes to starting a business, it is advisable to shop around for the best rates and fees for your business banking. This is because rates and fees can vary significantly between banks, and you want to ensure you get the best deal for your business.
Firstly, you need to consider what type of business account you require. Common business accounts include a checking account, savings account, credit card account, and a merchant services account. A checking account is a good place to start, as it allows you to keep your business funds separate from your personal funds, offering limited personal liability protection. A savings account can also be useful, offering a place to store excess cash and earn interest. If you want to build a credit history, a credit card account is a good option, and a merchant services account will enable you to accept credit and debit card payments from customers.
When shopping around for rates and fees, consider the following:
- Introductory offers: Some banks may offer favourable introductory deals, such as low or no fees for a certain period.
- Transaction fees: Consider how many transactions you are likely to make each month and whether you will be charged for these. Some accounts offer unlimited transactions, while others charge a fee after a certain number.
- ATM access: If you frequently use ATMs, look for an account that offers free access to a wide network of ATMs. Some accounts may also offer refunds for fees charged by other banks for ATM usage.
- Cash deposits: If your business regularly deals with cash, look for an account that offers free cash deposits. Some accounts may charge a fee for this service.
- Interest rates: Consider whether you want an account that pays interest on your balance. Some accounts offer competitive interest rates, which can be a great perk, especially if you maintain a high balance.
- Minimum balance requirements: Some accounts may require you to maintain a minimum balance to avoid fees. Ensure you can meet these requirements to access the best rates.
- Additional perks: Other perks to look out for include 24/7 customer support, software features, and rewards or loyalty programs.
Don't forget to bring along your business documents when shopping around, including your business license and Employer Identification Number (EIN). By having your documentation ready, you can easily open an account when you find the right deal for your business.
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Some accounts require a minimum opening deposit
When starting a business, it is advisable to open a business bank account to stay legally compliant and protected. While most business bank accounts can be opened with a $0 deposit, some accounts require a minimum opening deposit, which typically ranges from $25 to $100. For example, Wells Fargo Small Business checking accounts have a minimum opening deposit of $25.
Some business savings accounts have a higher minimum opening deposit, ranging from $1,000 to $25,000. These accounts are not the norm, but rather the exception. It is important to note that rates, fees, and options vary from bank to bank, so it is recommended to shop around for the lowest fees and the best benefits.
In addition to minimum opening deposits, some accounts may require a minimum daily or average balance to avoid monthly service fees. For instance, Wells Fargo Small Business checking accounts have a $10 monthly service fee unless a $500 minimum daily balance or a $1,000 average ledger balance is maintained during the fee period.
When opening a business bank account, certain documents are typically required, such as business licenses, registration certificates, and government-issued photo identification. Some banks may also ask for expected monthly transactions, including ACH, wire transfers, or mobile check deposits. It is essential to carefully review the terms and conditions of the account to understand all the requirements and potential fees.
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Merchant services accounts allow you to accept card payments
While it is not mandatory to open a bank account with a bank to start a business, it is highly recommended. A business bank account helps you stay legally compliant and protected. It also provides benefits to your customers and employees. As soon as you start accepting or spending money as your business, you should open a business bank account.
One of the common business accounts is a merchant services account, which allows you to accept credit and debit card transactions from your customers. Merchant services refer to a full suite of payment solutions, hardware, and software for a business to accept credit cards, debit cards, and digital wallet payments in-store, on-the-go, and online.
A merchant account establishes a relationship between a business and a merchant services provider, like a bank. This agreement allows a business to accept credit cards and debit cards, along with other forms of payment. Not all merchant services providers require a merchant account. For example, all you need is a dedicated bank account to process payments with Square.
Some business owners open a business account at the same bank they use for their personal accounts. However, rates, fees, and options vary from bank to bank, so you should shop around to make sure you find the lowest fees and the best benefits. When opening a business account, banks may ask for various documents to verify your business and the individuals associated with it. These documents may include information about your business, its owners, and its management.
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Frequently asked questions
No, you can start a business without involving a bank. However, opening a business bank account is one of the most important steps you can take to keep your personal and business finances separate.
Business bank accounts offer perks that don't come with a standard personal bank account, such as limited personal liability protection by keeping your business funds separate from your personal funds.
The documents needed to open a business bank account depend on how your business is set up. Common requirements include a business name registration certificate, business license, partnership agreement, state certificate of partnership, articles of organization, LLC operating agreement, articles of incorporation, corporate bylaws, and federal tax ID number or Employer Identification Number (EIN).
Rates, fees, and options vary from bank to bank, so it's important to shop around to find the lowest fees and the best benefits. Some business owners open a business account at the same bank they use for their personal accounts for convenience.
You can usually apply for a business bank account fairly quickly by filling out the required forms and providing the necessary documentation. Most business bank accounts can be opened fully digitally online or through a mobile device, but banks with branch locations generally take in-person applications as well.
