You’ve launched your new business, the marketing campaign has kicked in, the website is up and running, potential customers are lined up and you start wondering: Do I need a separate bank account for my LLC?
Whether you are starting an LLC or already own one, opening a separate business bank account for your brand transactions makes sense. It’s easier to track your business income and expenses, helps protect you and other LLC members from personal liability, and improves your brand image.
Note: Choose from our selection of the best business banks to set up your LLC with features including superb customer service and no monthly fees, no transaction fees and PayPay integrations.
LLC bank account rules
Under state and federal law, an LLC is not required to have a separate bank account for its business. However, many legal and tax reasons suggest why an LLC needs to have independent bank and credit card accounts.
These accounts must be opened in the name of the LLC and using the LLC tax ID number, rather than the name and tax ID of the owners.
An LLC separate bank account helps create a separate business identity, which is important for maintaining your limited liability protection, one of the key benefits of an LLC.
In addition, using your personal bank account will likely be considered “commingling” of your funds with those of the business and a court could potentially find you individually liable for judgments against the LLC.
7 benefits to having a separate bank account for your LLC
Protects you from liability
The main reason that business owners opt to register their businesses as LLCs is that this business structure offers protection against liability. In case the business goes into debt, the creditors cannot come after your personal finances.
However, if you are using your personal bank account for business then you are not drawing a line between yourself and the business and it could lead to piercing the corporate veil. This is a situation where the court removes liability protection because of bad business practices.
In effect, this would allow creditors to use the money in your account to offset the business debts even when the money didn’t come from the business.
Allows you to claim deductions during tax time
Business owners are always looking for a way to minimize their tax burden and one perfect and legal way to do it is to take advantage of tax write-offs. The internal revenue service allows you to deduct business expenses from your taxable income.
For example, using a separate business account makes it much easier come tax time, as you will need to file your business income and expenses separately from your personal transactions.
Differentiating personal expenses from business expenses when they are in the same account can be time consuming and cumbersome.
To secure business financing
Your business bank statements play the biggest role when applying for a business loan or a business credit card. If you want to stand a chance of securing a big loan without much hassle, then you will need to open a separate business account early in your business so that you can begin building your credit history.
Easier tracking of business performance
The key to running a profitable business is to never lose track of the flow of money in the business. Having a separate bank account allows you to easily track money coming in and money coming out so that you know when the business is making a profit and when it’s making a loss.
Accept debit and credit card payments
People are beginning to ditch cash in preference for card payments. Consequently, if your LLC has no way of receiving debit or credit card payments it could lead to lost business. Personal bank accounts don’t have a provision to receive these kinds of payments but business checking accounts do.
This is another reason why it makes sense not to just have a separate bank account for your LLC but a separate business bank account.
Boost business credibility
Customers will have increased trust in your business when they make payments to a business bank account as opposed to a personal bank account.
This is especially true for online transactions where the customer has never met the business owner and is a bit skeptical about completing the payment.
Can you imagine how hard it will be to maintain your business books if your personal and business finances are mixed? If you are hiring someone to do bookkeeping for you it means you have to pay them more because of the added hassle.
All that can be avoided by having a separate account dedicated to your LLC financials only.
Personal vs business bank account differences
There are some important differences between a personal bank account and a business bank account. Be sure you understand them before opening your new business account.
- Minimum balances: Business bank accounts typically require higher minimum balances to avoid maintenance fees. You may also need to make a minimum initial deposit to open the account. Look for an account with minimums you can meet.
- Employee cards: Business bank accounts may allow you to get debit cards for your employees so they can make purchases and deposits or withdraw cash at ATMs.
- Transaction limits: Banks may limit the number of transactions or transfers you can have per month. Some business bank accounts even limit how much money you can deposit. Choose a bank whose limits make sense for your business’s projected sales.
- Credit card payments: Business checking accounts may enable you to take credit card payments using what is known as a merchant account.
- Additional support: Business bank accounts often come with additional services to help you run your business. For instance, you might get access to business specialists, scanners you can use to deposit large amounts of checks remotely, or free wire transfers.
Having both accounts at the same bank can make it easier to transfer funds when it’s time to pay yourself. But be sure to shop around before making your decision.
Choosing a business bank account for my LLC
While there are countless banking options (including online banks), you should select a bank with great customer service, costs, availability of small business lending, and interest rates.
Typically both of these qualities are more easily found at local banks and credit unions. In addition to convenience, local banks may also be more flexible and willing to work with you regarding minimum account requirements, business loans, and investments.
Before choosing a bank, you should consider the bank’s:
- Monthly fees
- Minimum required balance
- Deposit limitations
- Accounting opening requirements
- Integration capabilities with tools like Stripe and QuickBooks
- Mobile application
- Customer service
How to open an LLC bank account?
All banks require businesses to provide some sort of documentation when opening up a business account. So, you need to gather some paperwork to prove you’re a legitimate business.
Information you’ll need to provide a bank with:
- Social Security number (SSN)
- Employer Identification Number (EIN)
- Business license
- Legal business name
- DBA name
- Organizing documents (Articles of Organization)
Depending on your bank’s requirement, you might need to provide various pieces of information to establish a business bank account. When researching your banking options, make sure you know what each’s requirements are for opening a business bank account.
Some bank applications including Novo are reviewed within 24 hours; however, the process can take anywhere from 3 – 5 business days. After you receive your bank approval, you’ll need to accept the account agreement and then you’ll be able to fund and access your account.
No matter what form of business you own, using a personal bank account for business expenses can make accounting more complicated, get you in hot water with the IRS and even put your personal assets at risk if someone sues your business. Protect yourself from these risks by opening a business bank account.
Can I use my personal bank account for my LLC?
LLCs and sole proprietorships can use their personal bank account to run their business however it isn’t advisable. Sole proprietorships aren’t required to have a separate business bank account unless they trade using a fictitious DBA name (doing business as).
Can I withdraw money from my LLC?
LLC can pay themselves by taking money out of the LLC’s profits as needed. This is called an owner’s draw. You can simply write yourself a check or transfer the money from your LLC’s bank account to your personal bank account.
What type of bank account should an LLC have?
An LLC business bank account is a separate bank account for your limited liability company. It is important to have a separate account for your business so that you can prove that you and your business are separate financial entities in the event of a lawsuit.
Tom is the founder of Gottagrow.io. He reads the offers, deciphers the details including features, pricing, included services and more to find you the best products and services.