You’ll hit plenty of milestones when you start your own business. Some are a bit more exciting than others: picking out a logo, getting your first client, or making your first million dollars. Less exciting for a founder is figuring out what they need to open a business bank account.
It’s far from the most glamorous task that business owners need to tackle. But opening a business bank account is essential so you can hit those other bragworthy milestones. (Or, at minimum, to qualify for a small business loan when the time comes.)
And, maybe surprisingly, the requirements to open a business bank account aren’t super straightforward. So let’s see how to get rolling on opening a business bank account, which really is a big deal! Even if doesn’t seem that momentous, it is.
First, Why Do You Need a Business Bank Account at All?
You’ve heard the saying, “Keep your personal life and your business life separate” before, right? It’s good advice—the two don’t mix all that well.
Well, as far as your finances are concerned, it’s a great idea. And in basically every case, it’s mandatory to keep them separated. (Sole proprietorships are the one exception.)
An example: If you’re running an LLC, without separating out your financials, you’ll lose all of that “limited liability” you would have as an individual in case your business runs into any trouble. No separate business account, no liability protection.
There are other reasons it’s good practice to open a separate business bank account, too. A business checking account makes you look more professional in front of clients. You’ll get custom checks with your business’s name on them, a dedicated company debit card, and you’ll also make your accountant’s life so much easier for tax time.
The benefits you get when you open a business banking account far outweigh the headaches—get it over with early, and you’ll be happy you did!
And, Before You Open a Business Bank Account, Decide On Checking vs. Savings
Now that you know the benefits of opening a business bank account, it’s time to decide between a business checking account or a business savings account.
Think about how you use your own personal accounts. You use checking for day-to-day expenses, and to accept payments from friends and others. You use savings to store your leftover cash, and accrue a little interest on money you don’t necessarily need to access quickly.
Business bank accounts work the same way. It’s likely you’ll need a business checking account first, which’ll allow you to pay for things, collect invoices, and manage your cash flow. The basics!
Then, once you’re established and have more money in your checking account than you conceivably need to access within a month, consider adding on a business savings account to build interest and squirrel away any surplus money you’ve got. This is a place to stash away money for the long-term, getting a bit of interest from the bank all the while.
→TL;DR: It’s basically mandatory to separate your personal and business finances. Determine whether you need to pay for things and get paid (checking) or squirrel away money (savings) before you go forward.
What You Need to Open a Business Bank Account: An Overview
Whether you’re looking to open a business checking or business savings account, all banks will ask you for certain kinds of documentation about the business and its owners.
Some of these documents may vary depending on what state you live in (or the state in which you established your business). And depending on what kind of company you’ve set up, some of these documents might change. Clear as mud, right?
Here’s a basic overview of what you’ll need to open a business bank account for some of the most common kinds of business entities, in the most common scenarios:
Sole proprietorship/general partnership:
- Social Security number (sole proprietorship) or Business Tax Identification Number (EIN) (general partnership)
- Business license with the name of the business and the owner’s name(s)
- Business name filing document
General partnership/limited partnership/limited liability partnership:
- EIN
- Partnership agreement with the name of the business and its partners
- Organizing document filed with the state or origin
- Certificate of assumed name
- Business license
Limited liability company:
- Social Security number or EIN
- Articles of organization
- Certificate of organization
- Organizing document filed with a state
S-corp:
- Social Security number or EIN
- Articles of organization
- Certificate of organization
- Organizing document filed with a state
- Certificate of assumed name
- Balance sheet
→TL;DR: To open a business bank account, you’ll need general paperwork, like your EIN and other operating documentation. You’ll want to ask your specific bank what you need, though, since requirements vary state to state and account to account.
How to Prepare What You Need to Open a Business Bank Account
Now that you’ve gotten a sample of all the paperwork needed to open a business bank account, you might see something on that list you don’t have—or you’re at least curious about.
Here’s more on each, including how you go about getting it:
Business Tax Identification Number/Employer Identification Number
Applying for an EIN for your business from the IRS is perhaps one of the easiest steps in the process. (Surprising, but true.) It lets your business have a tax presence independent of your personal Social Security number, which can come in handy (or, depending on the kind of company, is mandatory) for filing taxes.
To obtain an EIN, you must have a valid Social Security number, and be filing on behalf of a company located in the United States. If that’s in order, you can create an EIN online in about a half hour.
Business License
A business license is exactly what you’d expect it to be—a license from a state body that allows you to conduct business in that state. Each state’s processes for getting a business license differs a bit, so it’s best to see what your state requires specifically.
Business Name Filing Document/Certificate of Assumed Name
A business needs a name, even if it’s your own name. Whether or not you’re looking to go with something creative or straightforward, you’ll need to file a business name filing document and have it registered with the government in order to make things legit.
Partnership Agreement
A partnership agreement, also called a founders agreement, is a pretty simple one to prepare depending on your needs. All it needs to do is provide an agreement between company founders on key issues the company will face, and how it will conduct business. Just make sure you have one at the ready in case your bank requires one in order to open a business bank account.
Organizing Documents (Articles of Organization, Certificate of Organization)
The requirements for organizing documents vary a bit by state, but at their core, they spell out a few crucial components of your company: its name, address, members, registered agent (the person who handles a company’s paperwork), management structure (who will be in charge of running the company), and the activities it will engage in (what kind of business it will conduct). A certificate of organization is merely a state’s formal recognition of these documents being on file.
→TL;DR: Even if you don’t have one of documents required to open a business bank account, you can prepare them all. Some take more work than others, and some are mandated federally while others are by state.
Now, Open a Business Bank Account!
Okay, if you’ve made it this far, that means you’ve won the boss-level battle of opening a business bank account. Everything else moves a lot more smoothly from here—at least with regard to getting an account opened.
In fact, choosing the right business bank account for your company is pretty straightforward if you know where to begin.
Chase is a good place to start, since they offer lots of checking options for different types of small businesses. Plus, for a limited time, you can claim an extra $200 bonus if you open a new Chase checking account and do these three simple things:
- Deposit $1,000 of new money within 10 business days of opening the account.
- Maintain this balance during your first 60 days with the account.
- Perform five qualifying transactions—debit card purchases, Chase QuickDepositSM, ACH (credits), and wires (credits and debits)—within your first 60 days with the account.
Think of it as a nod for having all of that paperwork together.
Chase Total Checking
Who it’s right for: New businesses that are ready to grow while easily managing their cash flow.
Benefits:
- Low service fees ($12 for paperless billing, $15 for paper billing per month) that are waived if you maintain a $1,500 daily balance
- 100 free transactions per month
- Free, unlimited non-wire electronic deposits
- Eligible for extra $200 bonus
Chase Performance Checking
Who it’s right for: Bigger companies that need the essentials.
Benefits:
- Low service fees ($30 per month) that are waived with a daily balance of $35,000
- 250 free transactions per month
- Monthly deposits of up to $20,000 in cash are free
- Eligible for extra $200 bonus
Chase Platinum Checking
Who it’s right for: Businesses that are growing at full-tilt and need a premium experience
Benefits:
- Tons of free transactions (500 non-electronic deposits and withdrawals per month)
- $25,000 worth of free cash deposits per month
- Free incoming wire transfers (and four free outgoing wire transfers)
- Eligible for extra $200 bonus
The Bottom Line on What You Need to Open a Business Bank Account
As tricky as it might seem to open a business bank account for your company, it’s the kind of pain that you really only have to endure once.
If you take away anything, make sure you:
- Have all of your state and federal paperwork done and dusted
- Fulfill all of your state’s registration requirements
- Know where you are in company’s financial growth, like whether you need the liquidity of a checking account versus the interest rate of a savings account
- Right-size your company’s needs: no-frills checking with minimal fees or bells-and-whistles checking that comes with tons of features but requires a high daily balance?
The paperwork required to get your company set up with a bank account isn’t minimal, no question, but most of it will have already been done when you set up your business. And the other documents that haven’t been filed yet will still come in handy later on—whether it be at tax time or when your business grows.
Once this major hurdle is out of the way, you’ll be free to get cracking on the next big challenge: filling your business bank account with cash.
The post What Do I Need to Open a Business Bank Account? It’s Not a Silly Question appeared first on Fundera Ledger.
from Fundera Ledger https://www.fundera.com/blog/what-do-i-need-to-open-a-business-bank-account
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