By The LLC Attorney Team
Dec 19, 2023Opening a bank account for your LLC is a necessity. It reduces risk during an audit, provides asset protection, makes bookkeeping easier, and can avoid partnership disputes. Even if we don’t open your checking account, please ensure this is done.
After filing Articles of Organization and obtaining an EIN from the IRS, then you can open an account. Most financial institutions require you to have a signed operating agreement, but not all. If you use our account opening service we handle all this for you.
However, while an LLC provides valuable personal liability protection and operational flexibility, maintaining the separation between the LLC’s finances and those of its members is of paramount importance. This separation is not merely a best practice but often a legal requirement.
An LLC business bank account therefore serves as a dedicated financial hub for the business because it is where all the company’s income is deposited, and from which expenses are paid. However, what distinguishes an LLC business bank account from personal checking accounts or accounts for other types of businesses is its role in upholding the legal separation between the LLC and its members.
Given how regulated the banking industry is nearly every institution has the same rules and requirements to open a business account. Bankers need you to provide:
The above documents are standard and the minimum needed to prove the company is in good standing, and for the bank to know who they are doing business with. Gone are the days when you could open anonymous bank accounts or use a library of credit card accounts due to anti-money laundering efforts and the fight against terrorism.
Many companies tempt you with an offer to purchase a “Resolution to Open a Bank Account”, but this is really an attempt to up-charge you for something that isn’t needed. We include it for free to make a point about our competition, but we haven’t met a bank that requires it.
The person opening the account must have the authority to do so. This isn’t as intimidating as it seems. Owners and managers are signers for the company and may file the paperwork. Their signing authority can be demonstrated using a signed operating agreement. Generally, only one person needs to be present. Others can digitally sign and provide their identity verification.
A single-member LLC should still obtain an EIN and open a business bank account. They can open one using their Social Security Number, or use their personal bank account, but this is less than optimal for several reasons.
If the Internal Revenue Service audits your account, then having a firm separation between personal and business finances makes justifying business expenses easier.
If you are sued, then commingling personal accounts and business funds puts all your assets at risk. It can be hard to prove what is the company’s money, plus poor record keeping could lead a judge to pierce the corporate veil.
Having a separate account also makes bookkeeping easier, and enables you to tell how your company is doing independent of your personal checking account balances. Finally, with our bank opening service, we can have your business deposit account to open the same day we form your limited liability company. We make it as easy as possible for you.
It’s important to distinguish between a Single Member LLC, which is taxed as a Sole Proprietorship, and a true Sole Proprietorship which has not filed Articles of Organization with the state. The former refers simply to a tax status. The LLC still has the corporate veil. The latter refers to someone doing business under their own name or only a DBA. There is no formal business entity.
In such cases, a bank isn’t needed for asset protection. However, it can be useful for keeping personal and business assets separate. This makes determining whether your company is turning a profit or loss without having to separate personal transactions from business details on the bank statements. Ultimately, it’s a personal choice for whether the effort is worth it.
Some industries are not currently supported by a majority of banks and must seek alternative accommodations. This isn’t to say there is no bank that will accept companies from the industries listed below, but specialized bankers must be sought after.
If your company falls into one of these categories, then traditional banks such as Wells Fargo, Citigroup, and Morgan Stanley will ask you to look elsewhere. We have had some clients successfully placed with Swiss Bankers for these industries where appropriate.
So now that you have made a decision on business name and what LLC business account you will open, the next steps will be to actually open a business bank account. This is how:
After conducting thorough research, choose a bank that aligns with your LLC's requirements and preferences.
Banks typically request specific documents when opening a business account. These business documents may include the LLC's articles of organization, an operating agreement, and an Employer Identification Number (EIN) obtained from the IRS.
Schedule an appointment with the chosen bank and bring the requisite documents with you. Bank personnel will guide you through the account-opening process.
Activate your LLC's business bank account by making the required initial deposit. This amount can vary based on the bank and the selected account type.
Once your account is established, the bank will furnish you with essential account details, such as account numbers and access to online banking services.
Understanding the potential risks and legal considerations associated with opening an LLC bank account is also essential. Here are some crucial aspects to be aware of:
Maintaining a separate business bank account for your LLC is vital to protect your personal funds from business-related liabilities. However, it’s essential to recognize that this protection is not absolute. Actions that might pierce the corporate veil and expose your personal assets may include using your LLC business bank account for personal expenses, failing to operate your LLC as a legitimate business entity, or neglecting proper financial record-keeping.
To preserve your personal liability protection, be diligent in keeping business and personal finances separate.
Each U.S. state has its own set of regulations governing LLCs, including rules regarding the maintenance of separate business bank accounts. Failing to comply with state-specific requirements can result in legal consequences, including the loss of limited liability protection. To avoid such issues, do your research and adhere to the laws in your state.
The great thing about LLCs, is that they offer flexibility in their tax treatment. By default, they are considered “pass-through” entities, with profits and losses flowing through to members’ individual tax returns. However, LLCs can elect to be taxed as corporations, which may have different tax implications. To ensure compliance with IRS tax regulations:
So when selecting a bank for your LLC, carefully review the fees associated with business bank accounts. These fees can include monthly maintenance fees, transaction charges, monthly fees, and other costs that can impact your LLC’s financial health. Choose a bank with a fee structure that aligns with your budget.
Banks are subject to stringent AML and KYC regulations to prevent money laundering and fraud. Because of this, you may need to provide additional documentation and information to satisfy these regulations; be prepared to furnish accurate details about your business activities and sources of income.
Maintaining accurate financial records is not only good business practice but also a legal requirement. Well-organized records can prove invaluable during audits or legal disputes. It is for this reason that it is recommended to invest in accounting software or consulting a professional accountant to ensure your LLC's financial records are in good order.
When opening an LLC bank account, you'll likely encounter a contract or agreement outlining the terms and conditions. So before signing, carefully read and understand these documents, paying particular attention to clauses related to fees, account closures, or changes in terms.
Last but not least, remember that if your LLC business bank accounts remain inactive for an extended period, the bank may impose dormant account transaction fees or close the accounts. It is therefore advisable to familiarize yourself with your bank's policies concerning account activity to avoid unexpected charges.
Establishing and managing dedicated business bank accounts for your LLC is a fundamental aspect of responsible business ownership. It not only ensures legal compliance but also promotes transparency and trustworthiness in your financial dealings. Carefully select a bank that aligns with your LLC's needs, gather the requisite documents, and meticulously oversee your business banking account to lay a strong foundation for your business's financial success. For any queries or concerns, seek guidance from financial professionals or accountants to make well-informed decisions for your LLC's financial well-being.
To be honest it’s 2024. Almost every bank does, or should, allow online account opening services. Unfortunately, some of the bigger banks don’t make this easy because they don’t have to. We recommend working with an online provider with a robust mobile application. Many banks even waive wire fees and minimum account balances. Going to Bank of America, Chase, US Bank or the traditional financial institutions is no longer necessary to receive personalized and fast service.
Non-US residents face unique challenges when opening financial accounts. This primarily revolves around identity verification and prohibited countries. US banks are under increased government scrutiny to confirm the identities of their customers.
We believe Relay is one of the best banks given their willingness to work with international clients. The application can be completed online with only a passport. You may sign up on your own or use our free service as part of the bank onboarding process.
Each bank maintains its own list based on their internal risk factors, but in general residents of the following countries are barred from opening US financial accounts:
We believe the best bank account is a free bank account. They charge enough in other fees, and make money from their loan departments, that there should be no more minimum balance requirements and no monthly fee. Minimum contributions are another tactic used by banks to separate companies from their hard earned money.
With the proliferation of neo-banks, there has been an explosion in available offerings. Such banks don’t have their own charter, but rather use or extend an existing bank’s charter. Each is unique and you should find one whose checking or savings account best fits your company.
FDIC means Federal Deposit Insurance Corporation and is a government run program funded by banks to ensure depositors don’t lose their money in the event of a bank run.
The Great Financial Crisis (GFC) and recent regional bank failures are a reminder to choose carefully. While depositors have been made whole via the FDIC, or an acquisition, it’s important to note that technically only the first $250,000 in deposits are insured.
Some institutions can spread funds between multiple banks allowing for coverage several times this limit. Our preferred bank is Relay Financial which can spread your deposits between ten banks, for a total of $2,500,000 in FDIC coverage.
Many newer banks offer direct integrations with other SaaS companies. For example, a connection to Xero or Quickbooks to make bookkeeping easier. Most connect with payment processors such as PayPal or Stripe, but not all with platforms like Venmo or Zelle.
Mobile check and cash deposits are standard, but being able to mail in or out a check is a feature not all new banks have. Further, online only banks can make depositing cash a little more difficult. While this won’t be an issue in some industries, e.g. e-commerce, it would be for a food truck which transacts primarily in cash.
These laws were largely a function of the Patriot Act and have been honed since. They are in place to force compliance on business checking account openings. Those who have seen “The Laundromat” have seen one side of this, but there have also been large fines levied on banks for laundering drug and terrorist money. These spurred new statutes which require banks to better understand who the Ultimate Beneficial Owners (UBOs) of new accounts really are and the source of funds.
At the risk of sounding like a broken record… yes! Without proper business banking, there is little reason to form an LLC. Most will open a business bank for an LLC to minimize risk and taxes, while providing asset protection and sometimes privacy. These are all jeopardized by failing to open a business bank account for your LLC.
If you use a personal account for business, then you are commingling funds which is not looked upon favorably and can easily lead to partnership disputes. Do you want to share your personal checking account details with partners and explain which transactions are which? The only disadvantage is having to open a new account, but as covered above neo-banks have made online applications easy.
If you use a personal account for business, then you are commingling funds which is not looked upon favorably and can easily lead to partnership disputes. Do you want to share your personal checking account details with partners and explain which transactions are which? The only disadvantage is having to open a new account, but as covered above neo-banks have made online applications easy.
With proper documentation and the right banking partner, you can safeguard your business’s financial interests effectively. If you have any questions about forming your LLC, please complete our contact form.
Small business owners often find establishing and managing a Limited Liability Company (LLC) to be a prudent choice. This is because an LLC represents a distinct legal entity that combines the crucial benefits of personal limited liability protections with protection and operational flexibility. This unique structure provides entrepreneurs with a shield against personal liability for business debts and obligations while affording them greater control over their business operations.
At its core, an LLC is a business structure that blends the limited liability protection of a corporation with the simplicity and flexibility of a partnership or sole proprietorship. This means that LLC members (owners) are generally not personally responsible for the company’s debts and legal liabilities, shielding their personal assets from business-related risks.
However, what sets an LLC apart from other business structures is the necessity of establishing a dedicated business checking account. Unlike personal bank accounts or even accounts for other types of businesses, an LLC bank account is a critical component of maintaining the legal and financial separation between the company and its members.
Legal Separation: An LLC bank account is the cornerstone of maintaining the legal separation between the company and its members. This separation is critical for preserving limited liability protection. But without a dedicated business checking account, the line between personal and business finances can blur, potentially jeopardizing this protection.
Business Credibility: Having separate bank accounts reinforces the credibility of your LLC. It demonstrates to clients, partners, and suppliers that your business is a distinct and professional entity and fosters trust and confidence in your brand.
Compliance Requirements: Many states in the United States require LLCs to maintain separate business accounts to retain their legal status. Compliance with these regulations is crucial to avoid legal consequences or penalties.
Financial Management: A dedicated bank account simplifies financial management as it enables precise tracking of income, expenses, cash flow, and tax-related transactions. This, in turn, facilitates both internal operations and external financial reporting.
Another important step in opening up your LLC bank account is to decide whether to opt for a local bank with a personalized touch or a national bank with a broader range of services.
Types of Accounts: Explore the variety of business accounts offered by different banks, considering your specific needs. Determine whether you require a straightforward business checking account or anticipate using additional services like merchant services, business credit cards, or loans.
Fees and Charges: Be vigilant about the interest rates and fees associated with business accounts. Look for a bank that offers competitive rates and minimal fees, especially those related to monthly maintenance and transaction charges.
Online Banking Services:In today's digital age, robust online and mobile banking features are often indispensable, which is why it is important to ensure that it provides these features to facilitate efficient financial management.