What started as a small venture is now an honest-to-goodness business. With the increase in sales and hiring of employees, a business bank account becomes a necessity. How do you set up a bank account for your business?
While it is tempting to continue using your personal checking or even the family checking account for your new business, a dedicated business account is a must. Payroll, sales, and business expenses need to be processed through a dedicated account.
What Type of Business?
Before you open a bank account, determine what type of business you are running. Sole proprietorship? Partnership? Corporation?
A sole proprietor is a business owner who owns and operates a business. According to Wikipedia, there is no distinction between the sole proprietor and his business. In other words, all monies come to the owner, the owner is responsible for every aspect or the business, and basically, “the buck stops with the owner.”
While it is not illegal to keep track of all business transactions through a personal checking account, it can be confusing. Even if you are a sole proprietor, keep track of all business transactions in a business account you will keep track of all transactions in one place. Having all transactions going through one account will be helpful when you prepare your taxes.
Do you have a business partner? If you have a partnership with one or more, a joint business account for the business will allow all partners to withdraw, write checks, and make deposits to the account. Partnerships are generally not incorporated.
Or have you established your business as a Limited Liability Company — LLC? One or more of the following requirements must be fulfilled in order to qualify as an LLC: (1) all members are within the field of membership, (2) the LLC is located within a designated community boundary, or (3) the LLC is named in the field of membership as an SEG. An LLC offers liability protection similar to that of a corporation, but is taxed more like a partnership.
Chances are good that if you have incorporated your business, you will have been advised to set up a separate business account. Wikipedia defines a corporation as a “legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members.”
Once you have determined what business you are running, decide what type of bank account you need.
How Many Deposits?
Consider scheduling a preliminary meeting with a banker at a local bank. You, as the sole proprietor, or with your business partners, if you are in a partnership or a corporation should ask the following questions before setting up a business bank account.
- What type of business do you run?
- How many deposits do you make per month?
- How many checks do you write each month?
- What minimum balance do you maintain each month?
- What is your average balance?
- When/where do you do all your transactions: ATM, night depository, online, or in person?
- Do you need electronic banking?
If you already have a business bank account, but are considering a move to a new bank for your business needs, ask yourself:
- What fees are you paying on your current bank account?
- How do the services at your current bank compare to the bank you are considering using?
- What services do you need that your existing bank does not provide?
Meeting with the Bank
Once you have determined what type of bank account you need, go to the bank to set up the account. You will need to have the right documentation with you. Eligibility requirements and the documentation needed to open a checking account will vary according to the business type.
Before you open a bank account for your business, you will need a Taxpayer ID Number. Apply for a Taxpayer ID number at IRS.gov.
If you are a sole proprietorship and the business name is not your own name, you will need a fictitious name certificate. In some states, a fictitious name certificate is known as a “Trade Name,” an “Assumed Name,” or a “Doing Business as Name.” You can apply for a fictitious name certificate through your state. For a complete listing of state filing information, go to SBA.gov. In addition, you will need a business license showing both business and owner’s names.
The bank will require all partners in the business to provide signatures to be kept on file at the bank. Determine which of your business partners will need access to the business bank account. Generally each signer will need to provide two pieces of identification that include a signature.
If your business is a corporation, supply the bank with a business Tax ID number and the Articles of Incorporation.
Minimums and Maximums
Finally, ask your banker for a recommendation on the type of bank account needed for your business. The bank may have maximum or minimum limits for check deposits and/or withdrawals. Select the bank account that best suits the needs of your business.