Opening a Business Bank Account in Three Easy Steps

The three key steps required to open a business bank account:

• Provide a copy of your social security number, your driver's license, your business's EIN number, and your business's formation documents.
• Determine whether you need to open a checking account, for instance, because you need to make payments in your business's name, or a savings account, for instance, because you are saving for a piece of equipment.
• Open your account by funding it with a check, cash or a transfer from your personal bank account.

https://www.shutterstock.com/image-vector/vector-illustration-virtual-business-assistant-on-1040049118

Opening a business bank account is an important milestone for an entrepreneur.  A business bank account, like obtaining a federal tax identification number for the business, also called an EIN number, represents the first tangible steps in establishing the business as an entity separate and distinct from you, the business owner.  Opening an account is a straightforward process, but it’s important to be prepared and know what kinds of accounts exist, which one works best for you, and the documents you’ll need to apply.  

https://www.shutterstock.com/video/clip-1085372105-business-finance-income-statement-accounting-statistics-concept

Step 1: Gather Required Documents

Before you weigh the various types of business banks accounts, be sure that you have the necessary documents required for a business account.  Below are the most common document requirements for each business type as well as the requirements that all business accounts must meet.

General Business Bank Account Requirements

• Personal identification: Regardless of whether your business is a limited liability corporation (LLC), a partnership, a sole proprietor or another business entity type, all signers on the business account must provide their Social Security number and government-issued photo identification, such as a driver’s license or passport.
• Business identification: A business bank account is an account that will be in the name of the business.  As such, you will be required to provide an EIN for your business, unless your business is a sole proprietor, in which case you will provide just your social security number.

Sole Proprietorship Business Bank Account Requirements

• Fictitious business name certificate: A sole proprietorship is a business that is not incorporated and that is owned by and run by just one person— you, the owner.  If your sole proprietorship operates under a name that is different than your own name, a so-called fictitious or alternate name, then you will provide a a doing-business-as certificate, also called a DBA certificate.  As an example, if you prepare taxes as a side hustle, you can sell your services and bill your customers under your own name, or, you can create a name for your company and bill your clients under that name.  Whatever name you choose for your company is its doing-business-as name.  Once you have selected a name, you will ensure that the name is available and not already in use by another business.  Additionally, you will register your DBA name with your state's department of revenue, at a cost of approximately $50-$100.

Requirements for a Partnership Business Bank Account 

• Organization documents: If you form your business as a partnership with one or more partners, then you will need to provide your bank with your business partnership agreement, along with any other documents that you prepared when you created your partnership.
   

Requirements for S Corporations and C Corporations 

• Articles of incorporation: A If you establish a corporation, be it a C corporation, which is tax separately from its owner, or an S corporation, which is not, you will need to provide your bank with the company’s articles of incorporation.  Articles of incorporation essentially serve as your company’s birth certificate, establishing it as a business in your state, and providing the business's name, address, shareholders and authorized signers.  Each authorized signer will be required to sign a signature card with the bank, which permits the signer to sign bank checks and conduct business on behalf of the company. 

Limited Liability Company Business Bank Account Requirements

• Articles of organization: Similar to articles of incorporation for an S Corp or C corp, if you operate a limited liability corporation, you will be required to provide a certified copy of your articles of organization.  Some states refer to this document as a certificate of organization.  You will also need to provide an operating agreement that states the names of the members, or owners, of the LLC, who are authorized to sign checks and  transact business on behalf of the company.

Business Requirements for a Non-Profit

• 501(c)3 Letter:  A nonprofit organization requires authorization from the IRS to to note pay taxes on income.  This authorization is provided in the form of a 501(c)3 letter. You will need to show this letter, as proof of your organization’s tax-exempt status.

Step 2: Select the Right Bank Account

The two primary types of accounts that small businesses consider are a business checking account, and a business savings account. 

Small Business Checking Account

A small business checking account typically allows the business to make deposits and withdrawals, write checks, make electronic funds transfers, and use a debit card or ATM card to make purchases and cash withdrawals.  Monthly maintenance fees, per-transaction fees, overdraft fees and paper bank statement fees often apply, so be sure to ask questions and request any applicable waivers or offers as a new client.  

Business Savings Accounts

Savings accounts often have less transaction activity than checking accounts, and serve as a safe place for businesses to keep capital on hand while earning interest.  If you are saving funds for purchase of equipment or business expansion  down the road, discuss your goals and loan financing options with your bank relationship officer.

https://www.shutterstock.com/image-vector/open-bank-account-concept-icon-savings-1487978771

Step 3: Open Your Account

With more and more financial activity happening online, it is possible to open your business bank account both online and in person.  In both instances, you must provide the required documents for your entity type— sole proprietor, LLC, partnership, etc.— and submit these either in person, or through your bank’s secure portal.  Many bank websites offer a chat feature and customer service phone number, so if you have a question or need help navigating the site, these features can facilitate the account opening process. 

Once your account has been created, the bank officer or portal will ask, how you intend to fund the account.  Potential options include transferring funds from a personal checking or savings account, or if opening the account in person, providing cash, a cashiers check or a bank check.  Cash transfers from a credit card, a debit card, or electronic transfer options such as Venmo, CashApp and Western Union, are typically not permitted to fund an account, so check ahead if you are seeking to use one of these methods.

Once you’ve deposited funds into your business checking account or savings account, the account is ready to use!

The Money Wrap-Up

Creating a business bank account serves as a first important step in establishing your business as a stand-alone entity, separate and apart from you.  A business bank account also can deepen the relationship you have with your bank and facilitate a business line of credit or loan for expansion.  As with a personal savings or checking account, a financial plan along with careful budgeting is key to maximizing the value of a business account.  Have you opened a business bank account recently?  We'd love to hear from you!