Requirements to Open a Business Bank Account
It is important for the growth of your business to open a business bank account. Getting a corporate bank account makes you appear trustworthy to your investors, holds your organization and personal funds apart, and when the time comes, will help you apply for loans. The conditions for opening a business bank account will differ, as you may have expected, depending on the sort of business you have the type of bank account you choose to establish, and which bank you use. Let’s see some of the basic stuff that you will need to open a business bank account.
Benefits of opening a bank account for your business
The main reason to open a business bank account would be in order to keep your personal and business financials separate. Mixing the two accounts will make it more complicated to pay your taxes and keep the books. If you combine corporate and personal money, you may also subject yourself to further legal scrutiny. Whether you operate a corporation or limited liability company (LLC), if you do not keep your financial accounts separate you may risk the possibility of becoming personally liable for corporate losses. That means if your organization acquires a loan, creditors could come after your personal belongings. In addition, in front of consumers, a company checking account helps you appear more legitimate. You will also receive personalized business checks, a dedicated company debit card. Opening a business bank account is also one step to building the company’s business credit, something that will help you apply down the road for support and favorable supplier terms. When you start a company bank account, the rewards you get well outweigh the headaches, and you will be glad you did.
Types of accounts for Business Banking
Now that you realize the advantages of opening a business bank account, it is time to consider what sort of checking account you require. There are three major kinds of bank accounts for business:
Business checking account
Business savings account
Think of how your personal accounts are used by you. You use regular cost verification, and accept contributions from friends and others. To hold your extra cash, you use investments, and accrue a little interest on the capital you do not really have to access fast. Business bank accounts operate in exactly the same manner. First you would actually need a business bank account that helps you do the basics: pay for stuff, receive invoices, and control your cash flow. Then once you have an accumulated amount of excess funds (that you do not need access to for your monthly expenses) you can deposit it into a business investment account, and build interest on it. This account helps you to maintain funds while generating interest over the long run.
If your company accepts credit cards payments, merchant accounts are compensated before the consumer pays their credit card bill for their purchases. In order to open a merchant account you will need to have a business checking account. You will need a merchant account so that your company can accept the credit card purchases, and have a place to deposit the funds. Before the buyer pays their credit card firm, retailer service companies reimburse you for the transactions. Traditional banks do offer merchant service accounts but there are various banks that offer different types of accounts.
What You Need to Open a Business Bank Account
Social security number (SSN) or Employer identification number (EIN): You would need to include your EIN, as well as the documentation that the IRS sent you while issuing your EIN, to prove the identification of your organization. Some banks encourage sole proprietors to use a social security number instead of an EIN, but even if it is not necessary, there are many advantages of having an EIN. Applying for an EIN for your organization on the website of the IRS is easy and convenient. It makes a tax profile for your corporation separate from your social security number. You must have a legitimate Social Security number to receive an EIN to be enrolled on behalf of a corporation based in the United States. An EIN online request should take around a half-hour, once it is in order, make sure to save the confirmation letter of your EIN, which you will need to display to the bank.
Personal Identification: In order to show that you are affiliated with the firm, most banks may often ask you for one or two types of personal identification. You must be an officer or the company’s owner in order to establish a business bank account. A driver’s license, state-issued id, or passport provide legitimate means of personal identification.
Business License: A business license is a document provided by a state department where it is appropriate to register some kinds of business organizations. It verifies that the state is legally licensed with a corporate agency and is allowed to do business there. The procedures for securing a business license for each state or locality can vary from state to state, so it is wise to check with the bank to see what they require.
Fictitious Names/”Doing Business As”: Many firms work under a trade name which is separate from their legal name. If you find that this applies to your business, you would need to register with the Secretary of State of your state a fictitious business name, often known as a “doing business as” name (DBA). As evidence of your business’s trading mark, the bank will inquire for a copy of your DBA filing papers.
Partnership Agreement: A partnership agreement is a contract entered into by partners when they create a business, that dictates how the business will operate. This might be labeled bylaws for corporations, and for LLCs, it could be called an operating arrangement. The contract addresses pressing matters that the corporation will encounter, the privileges and obligations of each owner, and how it will do business.
Accurate Documentation: The criteria for assembling records differ slightly by jurisdiction, but they set out a few main components of your business at its core: corporate name, address, shareholders, registered agent , management configuration (who will be responsible for operating the company), and the operations with which it will be active in. The articles of incorporation are considered the key organizational text for a company, and is called the articles of association for an LLC. These cornerstone papers should be kept in a secure location and ready to be shown to a bank.
Monthly Credit Card Revenue: This final piece of info is for companies who are applying for a merchant services account. If you have a merchant account, you would need to inform them of your processing history and your total amount of monthly credit card revenue. However, if you are a startup, you most probably will not have any processing history, but will need to provide estimates of your monthly credit card income. Any merchant account suppliers, such as accounting statements and bank account statements, call for extra documents as well.Sole Proprietorships -Social security number (okay for sole proprietorships only) or EIN -Personal identification -Business license with the name of the business and the owner’s name(s) -Certificate of assumed name/DBA -Monthly credit card revenue (for merchant accounts) Partnerships -EIN -Personal identification -Business license -Certificate of assumed name/DBA -Partnership agreement with the name of the business and its partners -Organizing document filed with the state (for limited partnerships or limited liability partnerships) -Monthly credit card revenue (for merchant accounts) Limited Liability Companies -EIN -Personal identification -Business license -Certificate of assumed name/DBA -LLC operating agreement with the name of the business and its partners -Articles of organization -Monthly credit card revenue (for merchant accounts) Corporations -EIN -Personal identification -Business license -Certificate of assumed name/DBA -Corporate bylaws -Articles of incorporation -Monthly credit card revenue (for merchant accounts)
As complicated as opening a business bank account for your business might be, it is the kind of process that you only have to experience once. Meet all the criteria for registration in your state, and have all the state and federal documents ready to go. You should also understand what the requirements of your business are, such as, if you need a checking account’s flexibility compared to a savings account’s interest rate.
The documentation needed to have your company set up with a bank account is not insignificant, but much of it will have been completed in the process of setting up your business. And later on, whether it is at tax time or as the company expands, the process of assembling these documents will come in handy.