Opening a business bank account is an important step in forming a Limited Liability Company and starting your new venture. Learn more about why it’s important to have a separate LLC bank account and what to look for when opening an account.
Why You Shouldn’t Use a Personal Bank Account
Having a separate business bank account designated for your LLC is not only more convenient to track income and expenses, but also necessary to maintain the personal liability protection afforded by the Limited Liability Company business structure. Using your personal bank account will likely be considered “commingling” of your funds with those of the business. A court could potentially find you individually liable for judgments against the LLC.
A separate business account for your LLC also makes it easier to track business expenses. Business bank accounts also come with several other features personal bank accounts don’t have.
Choosing a Bank
While there are countless banking options (including online banks), you should select a bank with great customer service, costs, availability of small business lending, and interest rates. Typically both of these qualities are more easily found at local banks and credit unions. In addition to convenience, local banks may also be more flexible and willing to work with you regarding minimum account requirements, business loans, and investments.
Before choosing a bank, you should compare the monthly fees, and minimum required balance to determine the best fit for your business.
Most banks charge monthly fees for personal checking accounts, but the fees for small business bank accounts can be markedly more expensive and take the unaware business owners by surprise.
Monthly service fees occur each month and are applied against a business account for each month it remains open. Some banks will waive this fee or offer account options that do not include a monthly fee.
Some banks also apply fees for excess transactions, overdraft protection, debit cards, and cash handling. Be sure to inquire about these fees and alternative accounts before starting the process of opening your account.
Banks typically require that your business checking account or savings account maintain a minimum amount to remain active. This is also true for most personal checking accounts, although the minimum required for an LLC bank account is usually much higher. The minimum balance requirements and maintenance fee should be a big factor in your decision in banking institutions.
Some banks will limit the number or amount of cash deposits or business transactions, so be sure to read the fine print to minimize transaction fees.
Also, if you are making deposits, be to have a branch that is conveniently located.
What is Needed to Open an Account
Requirements to open a bank account for a new business will vary by each financial institution, so it is important to contact your chosen bank before setting up the account. Although the specifics may vary, a bank will often require the Limited Liability Company’s business name, personal identification of the LLC members, Employer Identification Number (EIN), formation documents (Articles of Organization), registered agent information and possibly a banking resolution. If your business structure is a corporation, you will need the Articles of incorporation, and if a partnership, you may need a partnership agreement.
You will need to bring personal identification for each member or other authorized party listed on the account. Sometimes banks will require two types of personal identification, in addition to a signature for each member. At least one needs to be government-issued, such as a passport or U.S. driver’s license. The other may be verification provided by a different party, like a financial institution or utility company.
Each member will also need to provide their social security number or taxpayer identification number, date of birth, physical address, and contact information. Depending on the institution, each member may be required to be physically present in the bank when opening the account.
Federal Employer Identification Number
After successfully forming your LLC and before setting up a bank account, you may need to apply for an Employer Identification Number (EIN) with the IRS. The EIN (also referred to as a Federal Tax Identification Number) is a nine-digit number used to identify a business entity for tax purposes. Be sure to wait until applying for the EIN until after securing the LLC name with the Secretary of State (or similarly named state entity registration agency)
In most cases, the bank will allow a Single-Member LLC to use the owner’s SSN provided they elect to be taxed as a sole proprietorship and have no employees as the IRS does not require them to have an EIN. Regardless, a few banks will still request the EIN.
This process is easily completed online through the IRS’s website. Once you or your designated third party complete the application online, a unique EIN page will be generated. You will need to provide this number to the bank when setting up your LLC account.
LLC Formation Documents
When the LLC is initially formed, the Secretary of State (or similarly named entity registration department) will send back the filed formation documents such as the Articles of Organization, Articles of Formation, Certificate of Formation, etc.
The bank will make a copy of the filed formation documents proving the existence of the LLC.
Depending on how long the LLC has been in existence, the bank may also request a certificate of good standing. This is proof from the Secretary of State that the entity is active, and paperwork is up-to-date.
A banking resolution is a document that denotes a vote by the members of the LLC, authorizing the establishment and management of an LLC business bank account. Many banks probably won’t require a banking resolution or copy of your LLC Operating Agreement to set up your account. However, having a banking resolution among you and other members is good documentation to have in your business file.
The bank will most often want a banking resolution for multi-member LLCs that don’t specifically name someone in the Operating Agreement to open the account.
If your bank does require a banking resolution to establish an account, you can draft your own. Before doing this, be sure to see if the bank has a specific form they prefer.
How to Sign Checks
Knowing how to sign checks as an officer of the business properly is another vital aspect of maintaining liability protection. Similar to signing any legal document with just your name, signing in your name only can create a problem as this may tie you personally in the event of a lawsuit.
To maintain liability protection when signing a check on behalf of an LLC, you must sign the check with:
- Your name and LLC title
- The legal name of the LLC
- Bank account number where the funds are being deposited
Does an LLC credit card require this much documentation?
Often when applying for a business credit card under the LLC’s name, all that is required is the name and EIN of the LLC in addition to the cardholder’s name and social security number. The ability to get a credit card for the business is usually dependent on the individual card holder’s credit history.