When setting up a limited liability company or LLC, you’ll need to open a bank account. This is a requirement for every business operating as a separate legal entity from its owner.
In this article, we will cover everything you need to know about opening a bank account for an LLC. We'll discuss the pros and cons, what documents you need, and other important considerations.
By forming an LLC, you're essentially declaring that you and your business are separate entities. As such, one of the benefits of having a business bank account as an LLC is that it provides liability protection, shielding your personal assets.
Protecting Yourself if Your Business Gets Sued
If your LLC is sued, the plaintiff can only go after the assets of the LLC and not your personal assets. While new businesses generally don’t think about the prospects of being sued, this is the safest route in case something goes south. A separate business account can be especially helpful if you are the sole owner of the LLC.
Another benefit of having a bank account as an LLC is that it simplifies business accounting. Having a separate business bank account for your LLC can make it easier to track expenses and income, both for you and your bookkeeper, which can be helpful come tax season.
When the time comes to file your taxes as an LLC, you don’t have to go through the hassle of separating your business and personal transactions within your personal accounts. Small businesses generally have to pay estimated quarterly taxes, and an LLC business bank account is sure to speed up and simplify that process.
Another benefit of having an LLC account is that it makes your business appear more professional. If you are dealing with clients or vendors, they may be more likely to take your business seriously if you have a separate business account.
Now that we've discussed the benefits of having an LLC account, let's talk about how to open one.
The first step is to choose a bank. When it comes to choosing a bank for your new business, there are a few things you'll want to keep in mind.
The first thing to figure out is whether you wish to go with an online bank or a brick-and-mortar one. Both solutions have their pros and cons, so make sure the bank offers the services you need.
For example, if you need to deposit cash remotely, make sure the bank offers online banking. If you plan on using your LLC bank account to pay bills, make sure the bank has bill pay. Also, make sure to check online reviews on the quality of customer support the bank provides.
Another thing to keep in mind when choosing a bank is fees. Some banks charge monthly maintenance fees, while others don't. Overdraft fees also have the tendency to eat into your business profits. Make sure to research the fees associated with different banks before making a decision.
You should also check whether the bank of your choosing has other useful components that you can use in the future together with the LLC checking account. For example, if you think you may need a business loan to kickstart your operations, get details about interest rates, loan terms, and revenue requirements.
It might also be a good idea to check for different types of accounts available and select a bank that offers all the types you need or might need in the future.
There are a few different types of business accounts that are available to LLCs. The most common type of account is a business checking account.
A business checking account and a relevant debit card are a good option for LLCs because they allow you to easily access your money and make payments.
Another type of bank account available to LLCs is a savings account. This is a more appropriate option if you want to earn interest on your money or if you want to set aside money for taxes.
If none of the aforementioned LLC bank accounts are suitable, you can open a money market account. This is a solid option for LLCs that want to earn interest on their money but still have access to it when they need it.
Before opening an LLC bank account, you'll need to compile a short list of documents. Although different banks have different requirements for those looking to open a bank account for an LLC, there are a few common must-haves.
In most cases, these documents should be sufficient to open your LLC's bank account.
One of the more worrisome aspects for business owners who have employees and wish to set up a business bank account is the danger of losing control over their finances. You should look into your options before you authorize your employees to use the account.
Some banks may take advantage of your status as a new business owner, using it as an opportunity to sell you bigger or fancier checks than what's necessary with their special business bank account for LLC introductory offers. Also, be mindful of the minimum monthly balance and similar requirements that could be costly for small businesses.
Business Credit Score
Another thing to keep in mind when opening a bank account for an LCC is its impact on your business' credit score. Just like you have your individual FICO score, your business will also have one that you'll have to build and maintain.
This score will be used by banks and other lenders to determine your company's creditworthiness in case you need a loan. It will also be evaluated when you are renting office space or searching for a business partner.
Unlike personal credit scores that range from 300 to 850, a business credit score typically ranges from zero to 100. Dun & Bradstreet, Experian, and Equifax are the three major bureaus that determine a business credit score.
When you are setting up a bank account for your LLC, make sure you know which bureau the bank reports your transactions to. There is no single algorithm for determining a business credit score, and each of these bureaus will calculate it differently.
Another significant difference between a personal and business credit score is its accessibility. You are entitled to a free annual credit report from each of the three bureaus. But business owners that would like to stay informed about their business credit score have to pay for it and specifically order it from one of the three bureaus listed above.
It certainly pays off to maintain a good business credit score through your LLC bank account so you can take advantage of loans, insurance policies, and banking terms that are more favorable.
The information outlined in our guide will make it easy for you to set up a bank account for your LLC. Just remember to collect all the necessary paperwork and educate yourself about what different banks offer.
Yes, you can. In order to do so, you'll need to provide the bank with your LLC's Articles of Organization, a government-issued photo ID, your Employee Identification Number, and an LLC operating agreement.
No, a single-member LLC does not need its own bank account. The LLC can use the owner's personal bank account. However, opening a bank account for an LLC is advisable to keep your personal and business finances separate and simplify your business accounting.
An LLC should have at least one bank account. This account can be used for all of the LLC's business transactions. However, it is advisable to have a separate bank account for each major expense or income stream. This will help you keep track of your finances and make it easier to file taxes.
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