If you’re just starting your business, you might wonder if you need to create a separate business entity or if you can operate as a sole proprietorship. While sole proprietorships are the simplest of all business entities, you should consider whether you need to create an LLC (or a single member LLC) for your business. Ultimately, the decision will depend on your personal circumstances as a business owner, but you should consider whether it makes sense to create an LLC.
What Is an LLC and Why Do You Need One to Open a Business Bank Account
An LLC, or limited liability company, is a business structure that provides its owners with protection from personal liability for the debts and obligations of the business. This means that if your LLC defaults on a loan or is sued, your personal assets – such as your home or savings account – are not at risk.
One of the benefits of forming an LLC is that it can help you open a business bank account. When you open a business bank account in your LLC’s name, the LLC becomes the legal owner of the account and any funds in it. This can provide some protection for your personal assets if your LLC ever gets into financial trouble.
To open a business bank account for your LLC, you will need to provide the bank with your LLC’s Articles of Organization or Certificate of Formation. You will also need to provide the bank with a resolution authorizing you to open the account on behalf of your LLC. Once you have all the required documents, you can open a business checking account or business savings account, just like any other business.
How to Form an LLC Without Having to Hire an Attorney
No business is too small to form an LLC. In fact, many sole proprietors choose to form an LLC to protect their personal assets from business debts and liabilities. You can easily form an LLC yourself without having to hire an attorney.
Here are the steps you need to take:
- Choose a name for your LLC. It must be distinguishable from other business names and cannot include restricted words or phrases.
- File articles of organization with your state’s LLC filing office. This simple document provides basic information about your LLC, such as its name, purpose, and member(s). This will also register you with the state to pay your business tax.
- Create an operating agreement. This is an internal document that outlines the LLC’s rules and regulations.
- Obtain any required business licenses and permits. Depending on your business activities, you may need to obtain a special business license or permit from your state or local government before you can operate as a legitimate business.
- Register for an (EIN) with the IRS. This will give your company a unique business tax ID number to be used on all tax forms, and you will not need to use your SSN (which will reduce your exposure to identity theft).
- Open a business bank account. This will help you keep your business finances separate. You won’t be able to open the account without an EIN.
The Benefits of Having a Business Bank Account Separate From Your Personal Account
If you are a sole proprietor, your personal and business finances are one and the same (although, even with a sole proprietorship, it is wise to have a company account separate from your personal checking account or other personal accounts). However, if you form an LLC, keeping your personal and business finances separate is important. One of the best ways to do this is to open a business bank account and avoid using your personal bank account for business transactions.
There are several benefits of having a separate company account, even if you are the only member of your LLC. First, this can make it easier to track your business expenses and help you file your taxes more accurately. Most banks will allow you to access your business bank account online so you can monitor business credit card transactions and debit card transactions in real-time.
Another benefit of having a small business account is that it can help you build a business credit score. If you use your personal credit cards for business expenses, your personal credit score will be affected if you have any late payments or max out your cards. However, your personal credit score will not be affected if you have business credit cards that you use exclusively for business expenses. This can be helpful if you ever need to apply for a business loan.
Having a business bank account can also give you some peace of mind. If something happens to your business and you need to close your LLC, your personal funds (including your personal bank accounts) will not be at risk if they are in a separate account.
Opening business checking accounts is relatively simple and can be done online or in person at your financial institution. When opening an account, you will need to provide basic information about your LLC, such as your business name, address, and Tax ID number. You will also need to deposit money into the account to get it started.
Once you have a business account, be sure to use it exclusively for business expenses. This will help you keep track of your expenses and income, and it will also help you build business credit. Having a company bank account can also help you get payment processing set up correctly, especially if your business plans to accept credit cards. will require that you have a separate company account to transfer the deposits.
What to Do if You’re Not Sure Whether or Not You Need an LLC
There are a lot of great reasons to form an LLC for your business. Limited liability protection is one of the biggest selling points—it can help keep your personal assets safe in the event that your business faces legal trouble or a claim.
But what if you’re not sure if you need an LLC? How can you decide if this type of business structure is right for you?
Here are a few things to consider:
1. The Size of Your Business
If you’re running a small, one-person operation, then an LLC may not be necessary. On the other hand, if you hire employees or have multiple contractors working for you, forming an LLC may be a good idea to help protect your personal assets.
2. The Type of Business You Are Running
It may be wise to form an LLC if you’re in a high-risk industry, such as construction. This type of business structure can help separate your personal assets from your business assets, which can be helpful if your business is sued or faces other legal trouble.
3. Your Personal Financial Situation
If you have a lot of personal assets, such as a home or savings, you may want to consider forming an LLC. This type of business structure can help protect your personal assets in the event that your business faces legal trouble.
4. Your Long-Term Goals
If you’re planning on growing your business and eventually selling it, an LLC can help you do that. This type of business structure can make transferring ownership of your business easier and can provide tax benefits when you sell.
Ultimately, whether or not you form an LLC is up to you. But if you’re not sure, it’s a good idea to talk to an attorney or accountant who can help you weigh the pros and cons of this type of business structure.
How to Choose the Right Business Bank Account For Your Company
Choosing the right business bank accounts is critical to starting and running your company. The wrong account could cost you money in fees or make it difficult to access your funds when you need them. Here are some tips to help you choose the right account for your business:
- Know your business banking needs:
Take some time to think about what your business needs from a banking relationship. Do you need a simple checking account with few frills, or do you need more sophisticated services like merchant services or loans? - Consider the fees.
Some banks charge monthly maintenance fees, while others charge per-transaction fees. Make sure you understand all the fees associated with an account before you sign up. - Compare interest rates.
You may be able to earn a higher return on your money by keeping it in an account that offers a higher interest rate. - Consider the location.
Local banks may have more personal services but also charge higher fees. You would find National Banks in more convenient locations and ATM access, but they may not include such a personalized service. - Read the fine print.
Once you’ve narrowed down your choices to a few banks, take some time to read the account agreement carefully. Make sure you understand all the terms and conditions before you agree to open an account.
By following these tips, you can be sure to choose the right company account for your company. With the right account in place, you’ll have everything you need to manage your finances and grow your business.
Final words
Whether you decide to form an LLC for your business is a personal decision that will depend on your circumstances. But once you have decided on your company structure and opened a company account, you will want to ensure that you and your company are protected, which means having the .
Suppose you need help navigating the various policies that you need to protect your assets. In that case, an independent insurance broker, such as the trained professionals at FarmerBrown.com, can walk you through the application process and ensure that you and your business get properly covered.