Opening a bank account in the name of your business is a requirement when you run a company. By opening a business bank account, you can receive money from customers in the name of your business. What some people don’t realize however is that opening a business bank account is very different from a personal account. A business bank account makes it easier to get a line of credit, which is vital for all businesses.
The benefits a business bank account has as compared to a personal bank account are:
- It protects you from personal liability by separating your business account from your personal account.
- Customers can pay your company instead of making a check in your name. This is a professional way of dealing with work.
- A business bank account helps you establish a credit history that will help you when you want to expand your business or look for additional funds.
Select a bank
When opening a business bank account, the first thing to decide is the bank. To do this, you can either go with the bank with whom you have a personal account, or you can look for banks that offer extra services for businesses and open an account with them. Some banks offer special services for business customers, however, you may have to maintain a higher account balance to avail these services.
You should compare the services offered by different banks and the charges they levy before deciding. You can even talk to customers of the bank who already have a business account before deciding the best bank. It is important to understand the bank rates and fees:
- Interest rates: This refers to the interest offered for the account. Business accounts either offer no interest or offer very low interest.
- Interest for credit: Banks offer a line of credit for business customers. This attracts interest and you need to be aware of the interest rate they would charge.
- Minimum account balance: Almost all banks have a minimum balance amount that you must maintain the account. If you do not maintain this balance, a fee would be levied. You need to know how the balance is calculated and what the fees are
- Transaction fees: Depending on the type of transactions you perform the bank can levy a transaction fee charges. For instance, when you make a wire transfer from your account, the bank charges a fee. You should be aware of all the transaction fees charged.
Once you decide on your preferred bank, you can visit open an account, it may even be possible to open the account online. The requirements to open the business bank account depends on your business type. The following explains the requirements and documents that you need to open a business bank account depending on the type of business:
If you are running a proprietorship firm, then you will be managing the business on your own. You need to submit the following to open a business bank account:
- You need to have a tax identification number. In the US, this is referred to as the EIN. This number or code and the supporting document needs to be produced.
- You need to provide personal identification, which can include a Govt. issued identity card, passport, driving license, etc.
- License or approval for your business from a competent authority needs to be enclosed with the bank application.
Partnership companies would have more than one partner running the company. If you have a partnership company, then you need to provide the following to open a business bank account:
- Partnership agreement that lists the name of the business and the name of the partners or the document filed with the registering authority.
- Personal identification for all the partners.
- Tax identification number for your partnership firm or for the partners (as per applicable norms)
- A letter with the signature of all the partners approving the opening of bank account and indicating who will operate the account and sign checks.
Companies (Limited liability and Corporations)
If your company is incorporated as a limited liability company (LLC) or a corporation, then the following are the documents needed to submit to open a bank account for your business:
- Tax identification number
- Personal identification documents for the officials operating the account.
- Company registration document or business license (as applicable).
- The agreement, which may be in the form of articles of associations or articles of organization. This document should be the one filed with the registering authority. It should have details of the company, name of the owners or directors, and bye-laws (as applicable).
- A resolution by the company board of directors or other authority approving the opening of the bank account. The resolution or letter from the head of the organization must indicate the name of the person(s) who will operate the business bank account. The names of the person(s) who will sign checks must also be indicated.
Opening the account
When opening a business account, you generally need to fill out an application form at the bank with all your details and submit copies of all the documentation required. Some banks permit you to do this online. Once the account is opened, you need to make an initial deposit as per the minimum balance requirement. You can pay this money by cash at the counter or transfer it online from your savings account.
Most banks open the account immediately and you will be issued a checkbook to start operating the account. You will also be given the user ID and password for operating the account online. You may also want to obtain a business credit card that can be used for business purposes. Make sure you get account statements every month to keep track of your account transactions.
Opening a business account is one of the key activities that needs to be done at the time of starting a business. The procedure and documentation needed to open a business bank account depends on the form of business. The information in this article will have helped you understand all that you need to open a business account and the procedure involved.