New business owners often wonder which action items to prioritize when launching a new venture. If you recently started or are about to start a business, one of the most important steps you should take is to open a business bank account that is separate from your personal account. Opening a separate account will lay the foundation for more effective liability management, financial tracking, and tax preparation.
Opening and maintaining a business bank account can provide proof that you are operating your business separately from your personal matters. In other words, having separate accounts will help strengthen your legal liability shield. Of course, the creation of a business account is not itself sufficient to eliminate all legal risks (particularly for business owners who are sole proprietors or general partners); nevertheless, it will support the establishment of the business as a separate entity for liability purposes. The following steps should be taken as you prepare to open a business account:
- Research different types of business accounts. Banks provide a variety of options for the accounts they offer. Be sure to research the different options available. The key features to keep in mind are monthly fees, interest earned, and minimum balance requirements. You should also examine the bank's accessibility, convenience, and overall reputation. For example, if you are operating an e-commerce business and have little need for a brick and mortar location for making deposits, an online business account may suffice and afford you the opportunity to enjoy higher annual percentage yields than more traditional banking institutions. Thinking about your unique business objectives will enable you to identify the bank account features that best suit your needs.
- Gather your formation documents. When opening a separate business account, banks will require you to provide your business's formation documents to confirm the legal structure and name of the business. One of these documents may be an Assumed Name Certificate if you have not yet legally created a separate entity or are operating the business under a trade name. If you have formed a limited liability company or a corporation, your formation documents may be your Certificate of Formation or Articles of Incorporation.
- Obtain ownership agreements. Ownership agreements like corporate bylaws and company operating agreements shed light on the roles each owner plays in the business. As it pertains to banking, these documents identify which individuals are authorized to sign for and take action with regard to the bank account. Review your ownership agreements to ensure that the company has clearly identified and empowered the right individuals. Further, make sure that the ownership agreements are not in conflict with the provisions of the formation documents.
- Obtain an Employer Identification Number. An Employer Identification Number (EIN) is a federal Taxpayer Identification Number provided by the Internal Revenue Service for a business. An EIN identifies you for banking and tax purposes and is required by a bank when opening a business bank account. Most banks will not allow you to open a business account without an EIN unless the account is for a sole proprietorship.
Once you have completed your research and gathered the proper documentation, you should be able to open an account. In some instances, a bank may also require you to obtain and provide evidence of specific business licenses. In such cases, the required licenses must accompany the other documents required.
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