As holders of an LLC (Limited Liability Company), the task of opening a business bank account might sit on your list of responsibilities. And rightfully so, having a separate bank account for your LLC isn’t merely recommended—it’s essential.
Separating your business and personal finances ensures accurate record-keeping, simplifies tax filing, and maintains the liability protection an LLC provides.
While the process may seem complex, with guidance, opening a business bank account for an LLC can be tackled efficiently. Our team of seasoned financial advisors has assisted countless companies with this aspect of business set-up, and we’re here to share our experience.
In the following paragraphs, we will explain how to open a business bank account for an LLC, what documents you need, and what to be aware of when choosing banks. Ready? Let’s dive in.
- To open a business bank account, the necessary steps involve providing valid identification, your LLC operating agreement, and potentially a statement of beneficial ownership, amongst other documents.
- When choosing a bank for your LLC, consider factors such as monthly charges, minimum balance requirements, variety of packages, and special offers. Always prioritize long-term benefits over short-term perks.
- A separate bank account for your business is crucial for organizational and tax purposes as it separates personal and business transactions, validates the LLC’s legitimacy, and simplifies taxation processes.
How To Open a Business Bank Account for an LLC
To open an LLC business bank account for an LLC, you will need to provide a series of documents like personal identification, your LLC’s operating agreement, a statement of beneficial ownership if necessary, and other papers like a business license. You will also need to make a first deposit.
Let’s take a closer look at the process.
Choose the Right Bank
Firstly, being on the path to setting up an LLC bank account, you need to decide which bank is suitable for your business needs. Not all business bank accounts are identical. Each bank will have unique offerings with varying fees, services, and features. Some banks may offer services specifically tailored to small businesses.
In our extensive experience, we’ve noticed that banks offering cost-effective solutions such as low or no monthly fees, transaction fees, and cash deposit charges often become the preferred choice for small businesses. Additionally, LLC owners should consider the convenience that comes with an extensive ATM network, online and mobile banking, and good customer service.
Apply for the Account
After choosing the right bank for your needs, the next step is to apply for the account. This can usually be done online, but visiting the bank branch can be beneficial if you have questions. At this point, you should already have filed the Articles of Organization and drafted your Operating Agreement, as you will need them for the process.
Initial Deposit to the Account
The final step in setting up your LLC bank account is to make the initial deposit to the account. The required amount varies by bank, with some requiring a minimum deposit in the thousands. However, most banks will have a minimum deposit requirement of under $100.
Tip: Throughout this process, remember to keep personal and business accounts separate. Mixing these can compromise the limited liability protection of your LLC. The business account should be solely used for running the business, paying business expenses, and accepting payments. This separation will allow for easier bookkeeping, better financial management, and cleaner audits.
What Documents Do You Need to Open an LLC Bank Account?
Having the necessary documents at hand not only expedites the process but also assists in keeping personal and business finances separate. So, what paperwork do you need to open a bank account for your LLC?
Certificate of Organization (or Similar Document)
Let’s start with the Certificate of Organization (also known as Articles of Organization). This acts as the birth certificate for your company.
Most banks require this document or a similar one, such as Articles of Incorporation (for corporations), as proof that your company is officially recognized.
It typically includes information such as the LLC’s name, its purpose, and the name and address of the registered agent.
From our in-depth research, we found that this step ensures the person opening the account is indeed the LLC owner or a duly authorized representative. It helps banks comply with regulatory requirements related to consumer identity verification and fraud prevention.
Banks typically need two forms of identification, such as a driver’s license, passport, or Social Security card.
Here’s a tip: Ensure that all personal ID documents are up-to-date and easily accessible to avoid delays in the account opening process.
LLC Operating Agreement & Additional Documents
Next, you’ll need your LLC’s operating agreement. This document outlines the structure of your LLC, its members, and how it will operate. Banks require this as it verifies your LLC’s existence and the right of its members to open and operate a business bank account.
Additionally, other documents like a business license may be necessary, especially if your business operates in a heavily regulated industry. It’s beneficial to confirm with the bank what additional documents could be necessary to facilitate the process.
EIN Confirmation or EIN Verification Letter
Next is the EIN Confirmation or an EIN Verification Letter. An Employer Identification Number (EIN), which is exclusive and distinct, is provided by the IRS to recognize a business organization. It’s used for tax purposes but when it comes to business banking, it’s crucial.
Just like how a social security number works for individuals, an EIN functions similarly for a business. It separates your personal accounts from your business accounts, ensuring that business transactions are kept separate for accounting and tax purposes.
Statement of Beneficial Ownership
Lastly, you have to present a statement of beneficial ownership. This document shows any individual who owns 25% or more of the LLC or exercises significant control over the business. Banks use this information for regulatory compliance and risk management.
Keep in mind that not all banks will require this for single-member LLCs or companies that do not have a complex ownership structure. Yet, it’s always useful to have this document on hand.
What to Pay Attention to When Opening a Bank Account
When setting up an LLC bank account, several crucial aspects require careful consideration to ensure you choose an appropriate account that will serve your business needs effectively. Here is some practical advice on these critical areas.
Monthly Charges & Minimum Balance Requirements
A key consideration when opening your LLC business account is understanding the associated fees, particularly monthly charges, and any minimum balance requirements.
We’ve noticed that online banks often offer low or even zero monthly charges compared to traditional banks, which can significantly reduce company expenses.
Also, be aware of the minimum balance requirements, which vary from bank to bank. Some banks may levy a monthly fee if your balance falls below a certain amount.
Variety of Packages
We also suggest looking into the variety of packages offered by banks for business bank accounts. We’re not just talking about basic business checking accounts – banks frequently have tiered business account options with various features.
For example, some offer merchant services, while others include better interest rates or allow for more transactions without additional fees. Consider how these features align with your business needs to make an informed choice.
Finally, special offers from banks should not be overlooked. From our expert analysis, we’ve found that new account bonuses, lower loan interest rates, and access to improved business tools can provide considerable kick-starts for an emerging LLC.
For example, a bank might offer free business checking, deductions on loan interest rates, or discounts on business software packages when you open a bank account.
In our years of assisting various LLC owners through their journey, our advice has consistently been to prioritize long-term benefits over short-term perks. It means assessing whether the bank’s services, fees, and offers align with your LLC operation and will continue to do so as your business grows.
Tips when Setting up an LLC Bank Account
Opening an LLC bank account isn’t just about picking a suitable bank and handing over the necessary documents—it also involves careful decision-making and awareness. Here, we’ll explore some key considerations and expert tips on setting up an LLC bank account.
Decide who Is Going to Be the Applicant
Determining who will be the applicant for your LLC business bank account is a crucial first step. In our experience, it’s best to have the primary LLC members or managers play this role, as they are typically most involved in the daily operation of the business.
The applicant will need to provide personal ID documents, including a social security number or individual taxpayer identification number. Additionally, the bank may require the LLC Agreement, which outlines the member’s roles and responsibilities.
Determine Authorized Signatories Prior to Applying
Before opening a business bank account, decide who among the LLC members should have signing rights. These individuals will have access to the funds and can conduct business operations on behalf of the LLC.
For a single-member LLC, this is usually straightforward. However, for multi-member LLCs, a strategic decision, often based on the operating agreement, is required. It’s essential to keep personal accounts separate from the LLC bank accounts to maintain clean financial records.
The bank will provide a debit card and checkbook to the authorized signatories, empowering them to execute transactions. It’s best to decide on this in advance to ensure smooth operation.
The Bank May Check Your Credit
For many banks, a credit check is part of the process of opening a business account. Some banks may decline your application if the applicant possesses a poor credit history. However, many online banking institutions are more lenient in this regard. NerdWallet mentions that approximately 80% of banks might ask to review applicants’ credit reports, while 20% do not.
Can A Non-US Resident Open an LLC Bank Account?
Yes, it is indeed possible for non-US residents to open an LLC bank account. Although the process may seem intimidating due to its complexity, it’s quite feasible.
Typically, it requires additional documentation compared to domestic account set-up and, in certain instances, might involve a personal visit to a local branch of the bank in the U.S.
To improve efficiency, a good practice is to contact the bank ahead of time to discuss specific requirements.
Many banks demand a physical U.S. address, so acquiring a virtual office address might be a beneficial step in the account creation process.
What Should You Use Your LLC Bank Account For?
An LLC bank account should be strictly reserved for business-related transactions. Personal funds and business funds should never intermingle; maintaining this distinct separation is pivotal not only for IRS recognition of your business as a separate entity but also for keeping accounting books neat.
The LLC bank account is where you’ll deposit customer payments and from where you’ll pay for all business expenses, employee wages, taxes, and others. Careful separation of personal and business finances facilitates tax calculations and provides a clear picture of business financial health.
Here’s an inside tip from our experience: When you open a bank account for your LLC, avoid using the same bank for your personal account to prevent mixing personal and LLC finances. Additionally, it might be a good idea to explore the potential of opening a separate business account online if the traditional bank requests too much of your time.
Does Your LLC Need a Business Bank Account?
Undoubtedly, if you’re an LLC owner, opening a separate business bank account is not just a suggestion – it’s a necessity. This study by Nav showed that approximately 70% of small businesses that didn’t open a business checking account and applied for a business loan were turned down.
Also, even if you operate as a sole proprietorship, the benefits of maintaining your personal finances separate from your business operations are undeniable.
Here’s why: it ensures IRS recognition of your company’s members as not personally liable, simplifying things come tax season.
Plus, an LLC account allows you to deposit cash from customer payments, withdraw funds to pay for business expenses, and maintain comprehensive records, all without involving your own bank account.