One of the most basic tasks when starting any small business is to set up a business bank account. Having a separate account for your business is a good idea for a number of reasons, and the process of establishing the account is usually quick and easy—if you take a little time to pull together the necessary documents before dealing with the bank.
Here are a few reasons why you should have a separate bank account for your business:
The documentation needed to set up the account will depend on how your business is organized: sole proprietorships require somewhat different documents from LLCs, and so on. Let's briefly look at what's needed for sole proprietorships, general partnerships, LLCs, and corporations.
For a sole proprietorship, you might not need anything more than a social security number—or, if you have obtained one, a federal taxpayer identification number (TIN). However, if your business requires a government-issued license, or you've filed a business name certificate because your business operates under a name different from your own name, you will also need the license or certificate showing both the business name and your own name.
For a general partnership, you'll need the partnership's TIN, a copy of your partnership agreement showing the name of your business and the names of the partners, and a business name certificate showing the business name and partners' names.
For a limited liability company, you'll need the company's TIN and a copy of the articles of organization (or, depending on the state where the LLC is organized, the equivalent document, such as a certificate of formation). If the articles of organization do not provide sufficient information regarding who is authorized to sign on behalf of the LLC, you may also need an additional LLC document that does provide that information.
For a corporation, you'll need the TIN and a copy of the articles of incorporation (or, depending on the state where the corporation is formed, the equivalent document, such as a certificate of incorporation). If the articles of incorporation do not provide sufficient information regarding who is authorized to sign on behalf of the corporation, you may also need an additional corporate document that does provide that information.
The common theme here is that you need the basic documents that substantiate the name and general nature of your business, the fact that your business is somehow registered with the IRS, and that you, personally, have the authority to set up the bank account.
With the appropriate documentation in hand, you'll need to decide what kind of bank account you want to open. More specifically, you may have options ranging from basic checking accounts that, under certain conditions, incur no monthly fees, to more expansive accounts that include additional features such as special cash management services to assist you in moving money between multiple accounts, special customer service and support, or free companion savings accounts. Regardless of the type of account you choose, you probably will also want to get a debit card for your business account. This can make it easier to pay at least some business expenses.
In many cases, you can open your account online without having to appear personally at the bank. However, some types of businesses cannot open accounts online. These include businesses that provide money services, such as check cashing, issuing money orders, exchanging currency, and wiring funds, and also telemarketing businesses, dealers in precious metals, gambling businesses, and government entities.
If you are changing the legal form of an existing business, for example from a partnership to an LLC or corporation, it's a good idea to open a new account for the business in its new legal form. You should have your new taxpayer ID number for the business in its new form, which you can present to the bank along with the articles of organization or articles of incorporation, and any other documents that may be required. (If you choose not to establish a new account for your business in its new legal form, you will need to investigate what the bank requires to convert your existing account, and also keep careful track of checks and other records relating to your business before and after it changes form.)
Going forward, it's important to manage your business bank account responsibly. One potential benefit of consistently maintaining an adequate balance in your account, not writing bad checks, and sticking with the same bank over time is that you will increase your chances of obtaining a business loan from your bank should that become necessary.
Opening a separate bank account is just one of many steps for starting a new business. For more information, check Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo) and The Small Business Start-Up Kit: A Legal Guide, by Peri H. Pakroo (Nolo).