An LLC structure provides independence to your business while maintaining your personal financial safety. And an LLC bank account further enhances those protections and draws an even clearer line between the business assets and individual assets of its owners. So, opening an assigned transactional account for your LLC is one of the important post-formation steps you should take. Is it difficult? What is the whole procedure? Do you need help or you can do it on your own? Keep on reading and you’ll find the answers.
Understanding an LLC
What has recently made an LLC structure so popular is its combinatory nature and ultimate adaptivity. Thus, mixing liability protection of corporations with pass-through taxation and a simple managerial system of general partnerships, an LLC is an appropriate framework both for startup projects and for growing ventures. Meanwhile, this legal framework establishes an entity, which is separate from its owners at a legal level and can function on its own. As such, it sets apart the members’ personal commitments from those of the company and keeps members’ individual assets away from the risk of being used for settling business obligations.
LLCs are formed and exist under the state statutes and their ongoing operations are governed and regulated by the state laws as well. Offering pretty much all the advantages of a more complicated legal framework, an LLC is quite easy and quick to register and can be co-owned by individuals and legal entities alike.
Yet another standout feature of an LLC is flexible taxation. While being free from paying taxes at a federal level and transferring company revenues and losses to owners’ individual tax returns, LLCs allow for a corporate tax status, as well as to match different entrepreneurial scenarios.
Why You Need an LLC Bank Account
A dedicated checking account is on the LLC formation list along with EIN acquisition, licenses and permits registration, and annual filings, and for a good reason. The biggest plus of this legal structure is the asset protection it brings. LLC members have no responsibility for the entity’s debts and obligations, as well as sues that might arise in that concern. However, to make use of those liability protections to the full, it’s necessary to maintain solid business independence at an operational level. In case of a lawsuit, this so-called corporate veil could be pierced by the court if the proof that you are not the same with your business is insufficient. So, the main reason for opening a current account for your venture is to clearly distinguish between individual and company funds to further contribute to legal separation between the enterprise and its owners.
However, there are several other valuable and meaningful reasons to open a business bank account for your newly-created venture:
- A separate LLC account will make it much easier to keep books for business-specific cash flows and keep an eye on expenses, as well as maintain tax records. You won’t commingle your personal and company finances and tax payments that will accordingly strengthen LLC owner protective legal shield;
- By maintaining an independent account for LLC matters and affairs, you’ll get more credibility and trust toward your business among potential clients and suppliers. This way, again, your enterprise will look more professional and well-organized;
- Finally, establishing proper relationships between your firm and the bank from the start will play an important role in the long run. Thus, if you need short-term credit to support operational issues or a long-term loan to finance rapid business growth, a bank will provide it more eagerly if you already have a separate account for your LLC.
Pros and Cons of Business Bank Account for an LLC
When you choose to create a company with a limited liability structure, a dedicated bank account is one of the initial steps in the formation process. Like any aspect of running an enterprise, managing a business bank account has its advantages and drawbacks, but it’s hard to dispute that maintaining a successful LLC is incredibly difficult without it—not if you wish to create a secure working environment and safeguard yourself against legal action. But let’s look at some of the main pros and cons in more detail.
Personal liability protection
When it comes to taxes, LLCs are classified as sole proprietorships or partnerships by default, meaning that all profits and expenses go through the personal returns of the owners. But unlike those informal structures, an LLC provides a shield of sorts, protecting you from personal accountability if the company itself is taken to court.
Keeping this so-called corporate veil in place requires proof that your personal assets do not intermingle with those of your entity. One of the essential steps to enforcing your liability protection is by opening a separate bank account for your company. This way, even if creditors go after your company, they won’t be able to involve your personal securities. The concept also extends to lawsuits of other nature.
Optimized account management
Mixing your private and business transactions is bound to get messy, especially if you are a sole LLC owner in which case it’s very tempting to contain your financial activities in one account. But trying to sort out the combined statements of your personal purchases and your commercial endeavours will only hinder your productivity. If you value efficiency and want to build a reputable venture, having a separate account for your business becomes a crucial aspect of effective bookkeeping.
Unlike single-member LLCs whose business accounts are controlled by their sole owners, companies with multiple members are managed by several people in most aspects, including the financial side of things. When this type of LLC has a dedicated account, all key members are granted access to it, as well as executive powers to conduct transactions.
The good news is, this drawback can be easily rectified by employing internal regulations concerning the visibility of financial transactions. Each member can optimize their approach to managing the account through dedicated accounting software systems, plus it will help you keep track of other members’ account activity, which helps maintain transparency between owners.
In addition to paying a mountain of service and recurring fees to launch and maintain your company—ranging from $50 to $600 or more—running an LLC with a registered business account means staying on top of your responsibilities to the bank. Most banks have a monthly fee for keeping your account running, as well as minimum balance requirements. If you fail to follow your bank’s regulations, you might not qualify for certain loans in the future.
Documents You’ll Need to Open an LLC Bank Account
To set up a personal bank account, you’ll have to provide certain documents verifying your identity. The same is true for a business checking account. While the document pack might somewhat vary by bank, there is a standard bundle you need to get ready with:
- Articles of Organization or Certificate of Formations (whatever they call it in your state) to prove your LLC’s eligibility;
- An Employer Identification Number or a Federal Tax ID issued by the IRS to distinguish your enterprise as a taxpayer. Mind, though, that the bank will require not simply a number itself but a confirmation or verification letter usually given by the IRS along with that number;
- Some banks also call for some LLC maintenance docs such as an Operating Agreement, business licenses, DBA certificate if applicable, etc.;
- ID documents of owners that will establish and operate an account.
How to Open an LLC Bank Account
Once you have all the necessary documents at hand, before completing and submitting an application form, make sure to clarify:
- Document requirements to double-check that you haven’t missed anything and figure out any added verifications and papers you might need to get or deliver;
- What type of business account you need and if you need one or more accounts of different types;
- Whether you need any added features such as all-day customer support or special management options;
- Monthly fees and minimum balance requirements if any;
- If you need a debit card tied to your business account that will facilitate paying expenses;
- If there is a deposit requirement and what is the deposit amount.
To rest assured you are moving in the right direction and choose an optimal account type and bank service package that will meet your current business need, it’s advisable that you do some research and compare account options offered by different banks to spot the one that will best suit your entrepreneurial scenario. For that purpose, you can talk to business account managers and take advice from your personal banker or a business consultant.
To open a company account in the bank, you need to agree upon the meeting in advance since some banks require all LLC members to be present to declare their consent. In most cases, though, it’s enough for authorized signers to come when the bank verifies your company legitimacy and gives a thumbs up to start an account for your enterprise. Yet, note, unless you have an Operating Agreement assigning corresponding powers and authorities to certain LLC members or managers, you’ll have to do that in writing beforehand.
How to Set up an LLC Current Account Online?
In the world of digital technology, we can do many things online right from the comfort of our own homes. It’s super convenient and time-saving, which is also important in the fast-paced rhythm of our modern lives. Opening a commercial account for the firm is not an exception. You don’t have to go to the bank each time and can choose to follow an online procedure. Though the process might slightly vary by bank, a common process for opening a checking account online remains the same:
- Visit the bank’s website and carefully read the instructions outlining the detail of an online procedure;
- Pick the type of account you target to set up for your LLC;
- Check for the opening deposit amount and ensure you have enough money to fund;
- Review the required document list and collect all the necessary papers;
- Fill in an online application form and sign it electronically;
- Make document scans and email them to the bank or send the copies by fax using an application ID number you’ll get when submitting an application form.
Noteworthy, if the bank doesn’t get your verification doc package within a specified period of time, your application will be canceled and you’ll have to make a new one. Besides, normally, only LLC owners (with no less than 25% ownership) and US residents are allowed to apply for opening a business account online.
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