Opening a business bank account is much different from opening a personal account.
"There are various factors business owners should consider when opening a business bank account," said Chas Rampenthal, general counsel at LegalZoom. "It’s essential to prepare all necessary documents from the get-go in order to facilitate a painless process."
Doing-business-as name (DBA)A DBA, often referred to as a "fictitious name," allows you to conduct business "like marketing or advertising or accept money under a name that differs from the existing name of your business," said Deborah Sweeney, CEO of MyCorporation.com. She added that most banks require a certified copy of a DBA to open a business bank account, since entrepreneurs aren't allowed to use their personal accounts under their business name.
"Filing for a DBA allows entities to do business under another name without having to form a new organization. For example, imagine an entrepreneur named Tom Johnson. Tom is a sole proprietor who runs his own business and wants to open up a sandwich shop called Subs 'n Chips. Tom wants this business to operate under the Subs 'n Chips name and not under his own name, Tom Johnson. As such, he would need to register for a DBA so he could do business under this name, including accepting and signing checks made out to and on behalf of Subs 'n Chips."
Employment Identification Number (EIN)If you're a sole proprietor, you will need an EIN, your Social Security number, and a driver's license or passport, according to Levi King, founder and CEO of credit solutions and monitoring firm Nav.
"These are used to prevent identity theft, fraud, terrorism, laundering, etc.," said entrepreneur Jay Coates. King added that, while some banks allow sole proprietors to open accounts without an EIN, it's still a good idea to create one to prevent the things Coates stated.
Rampenthal said that the EIN is an integral tool for managing taxes and paying employees.
"Sole proprietors may use their Social Security number for business tax purposes in lieu of an EIN," he added. "You can obtain an EIN for your business by filing with the IRS."
Articles of incorporationArticles of incorporation are used to show the bank how the business is structured, and to register your business with the state and other entities.
"If you form a business as an LLC, limited partnership, corporation or other separate legal entity, to open a bank account, you will need the articles of incorporation that you filed with the state if you are the sole owner," said Tiffany Wright, president of The Resourceful CEO, a financing advisory firm for small and midsize businesses, and project director at Cogent Analytics LLC.
Business licensesRampenthal said that, regardless of business entity, banks will generally ask for your current business license to prove you are legally permitted to conduct business in your region.
"This also ensures that your business is accountable for all actions taken – including around taxes and finances," he said. "Check with your state, county and local governments to determine if you need any licenses to operate your business."
With any bank account, the opener is required to provide documents that prove their identity. A business bank account is no different.
"These can include a government-issued picture ID such as a driver's license or passport," Rampenthal said. "This is used in order to corroborate the business owner is indeed the person who owns and/or runs the corresponding business."
Is in person or online better?Coates has experience opening a business bank account both in person and online, so he knows the benefits and downsides of each.
"When I opened my online account, I had to email and upload all of the above-mentioned documentation," he said. "Then I had to wait 48 hours for them to process it and open my account – versus in person, [where] the account was approved and opened [the] same day."
Rampenthal noted that some banks do not offer the option of opening a business account online, either to cut down on the risk of identity theft or due to the nature of certain businesses.
"No matter what type of business you own, you should always separate your personal and business finances," he said. "The first and most important step toward successfully separating your finances is to have separate bank accounts."
Image Credit: www.BillionPhotos.com / Shutterstock
Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
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