Opening a bank account for an LLC is not as easy as opening one for a sole proprietorship, but it's also not as difficult as you might think.
The process can be broken down into a few main steps: determining how much money your company needs to operate, selecting the right type of account, and filling out the necessary paperwork, and making any required deposits.
To help make this process easier, we've created this guide that will walk you through how to open a bank account with your local banking institution.
Why Does an LLC Need Its Own Bank Account?
Limited liability companies are considered separate entities from their members.
This means that the business is not responsible for its owners' personal and business finances and vice versa.
An LLC's bank account should reflect this distinction by separating business expenses and income from those belonging to an owner personally.
When you open a business bank account, your business will have its own bank account number.
The business' name should be listed as the primary LLC account holder on the application, not your personal name or that of another LLC member.
Once open, you can use this new separate account for all business-related transactions only.
Do not open a personal bank account with these personal funds unless otherwise required by law (for example, paying yourself in an LLC).
Doing so could put your personal assets at risk if something goes wrong with the business down the line.
It is important to note here that even though an owner's personally owned money cannot be used in their LLC's business activities without taking extra precautions during tax time, it does make sense financially to keep the separate bank account open since they often come bundled with better tax rates.
An LLC offers limited liability protection to its owners from any liabilities related to their business activities and operations, which means that creditors cannot go after the owner's personal assets if something goes wrong.
If borrowers want similar protections when getting a business loan through alternative lending companies, then they need an organizational structure that gives them this legal status.
How to Open an LLC Bank Account
Before they can open an LLC bank account, LLC owners need to pick the bank that is right for them.
When it comes to finding an LLC bank account, business owners have a lot of options.
There are big banks and small local ones; mom-and-pop-type establishments and branch locations serve everyone in your state.
To complicate things even more, each banking institution has its own criteria when considering new accounts - they might be looking at anything from whether you're already a customer, if this will be their first time opening something like this with you or if you've got credit issues on your record.
You really need to do some research before picking where you go with what type of checking/savings account suits your needs best.
Most banks will ask for similar documents to be delivered by the LLCs that apply for business accounts at their institution.
Articles of Organization
The best way for banks to be sure that your business is set as a legal entity is to see Articles of Organization.
These are filed with the state business registrar and outline your business's structure, purpose, number of authorized shares owned by each person or entity that is involved in management decision-making (this can even include shareholders who do not participate), a business name chosen for the LLC, and registered agent information.
LLC Operating Agreement
Operating agreements are business documents that set out the rights and duties of LLC members in a limited liability company.
They are similar to shareholder agreements for corporations, but they can be much simpler since LLCs have fewer formalities than corporations do.
Operating agreements matter because banks usually require one before they open an account for an LLC.
Most states' laws hold that unless you inform them otherwise, banks view your members as co-owners with equal ownership interests, which means no member has any greater right to withdraw funds from the bank accounts of his or her LLC than any other member does.
The operating agreement sets forth how decisions about withdrawing money will be made within the company—by vote or on some other basis.
Business License
Many banks will want to see your business licenses before they can set up your business bank account.
Your business license is proof that you are allowed to do business in your state.
Not all banks require business licenses, but some will ask for them as part of the account opening process so they can check with authorities about whether or not you have a history of business licensing violations.
Business licenses are usually issued by business licensing bureaus of the business' state government, so your business license will have a section for you to fill in with information about your business.
When you apply for other services, you may need this number, such as a business credit card or merchant account.
EIN
Employer Identification Number (EIN) is a business tax ID number that the Internal Revenue Service (IRS) issues to businesses.
Business owners use it to file business taxes, comply with federal laws and regulations, report business transactions to other companies or individuals, etc.
LLCs can't open a business bank account without an EIN because banks usually ask for this before they can accept them as their customers.
Without one, many financial institutions won't allow LLCs to establish business banking accounts since the government doesn't recognize official status.
With no credible taxpayer-identification information available for LLCs at all times during their lifetime, banks are naturally hesitant about opening up business checking accounts for these kinds of businesses.
This means that if you're planning to start a business and you're trying to establish a business checking account for your LLC, it's highly recommended that you first apply for an EIN number.
DBA Certificate
LLC's business bank account will need a DBA certificate from the business.
The acronym DBA stands for "Doing Business As," and a business will have a different name on its bank account because it is not acting like itself, but rather under an assumed name or business structure.
Banks usually require this document before opening your business banking accounts to ensure that you are operating legally within your state's LLC laws.
To begin with, banks ask for DBA certificates from small businesses to comply with Anti Money Laundering (AML) procedures required by federal law, which aims to prevent money laundering activities by verifying the identity of customers who open new bank accounts.
This procedure helps financial institutions avoid being used as tools for criminals seeking to launder dirty cash through legal entities.
How to Choose the Right Business Account?
The business account type you need will depend on the size of your business and how much money is in your checking account.
If you have a small amount of income coming through this bank, you may want to consider an interest-checking account for LLCs.
Many checking accounts for LLCs will have minimum monthly balance requirements. However, some companies may require a lower amount.
Consider opening an online business checking account if you do not want to go through the hassle of maintaining a checking account and meeting balance requirements.
As a business owner, you will want to have a business account that will serve as your emergency fund in case you need to make an unforeseen purchase or pay for unexpected expenses.
If you are looking to put away money on the side, consider opening up a high-yield business savings account.
This type of savings option is great if you know that there are upcoming purchases coming up within the next few months since this interest rate usually applies throughout the year rather than just during certain seasons like other accounts do.
A business owner's goal should be to find several bank accounts that best fit their needs and lifestyle.
The benefits of having multiple checking accounts available allow them more flexibility when it comes time to deposit funds into one specific account without spending hours at the local branch and waiting in line.
Opening up a business credit card is another great option as it will allow them to earn something back on every purchase they make, whether big or small.
Having an LLC means that the business owner has more than just one account because this type of setup requires two bank accounts: one for personal use and then one for business funds only.
This can get complicated, especially if you plan to travel abroad since banks may not be able to provide their services while out of the country, which could result in lost money when attempting international transfers.
The best way around this would be to open up yet another account with your destination's local currency so that there are no issues during foreign transactions.
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FAQs
Can I Use My LLC Bank Account For Personal Use?
Business bank accounts should never be used for personal purposes, but if your LLC bank account is a business checking or savings account, you can write checks for personal expenses from it as long as they are not excessive.
As an alternative to opening separate business and personal bank accounts, some people choose to use their business credit cards for both professional and private spending.
This option does have its pros and cons, so make sure you understand them before making this choice.
Is It Hard to Get a Business Loan With an LLC?
It depends. Business loans are difficult to get for all businesses, not just LLCs. In fact, credit unions made only 20% of small business loans in 2016.
Additionally, anyone's credit report is equally accessible by both companies and individuals alike.
If you have a strong credit score, it will be more likely that your business can secure funding through traditional means like bank loans or credit lines with other institutions.
For those whose credit scores might need some work before they're ready for prime time (i.e., approval), there are always alternative lending options like peer-to-peer lenders where users can invest into an individual person's loan request directly rather than applying through another financial institution as would traditionally happen when borrowing money from a credit union or bank.
Can I Deposit Personal Money Into LLC?
Although you can deposit cash into your LLC business bank account, cash deposits can pierce the corporate veil and compromise your personal finances and limited liability.
Conclusion
The importance of choosing the same bank for your personal and LLC accounts can't be stressed enough.
Having one account with all of your checking, savings, investments, loans, credit cards, etc., will simplify everything you do financially.
Plus, it's a lot easier to manage when you have someone else in charge who knows what they're doing.
Take a moment today to choose the right financial institution – after all that time spent working on your business plan - don't neglect this important step.
