A common motivator for most people when forming a limited liability company is the allure of protection. People operating under this entity know that their personal finances remain safe thanks to the limited liability protection that comes with this entity. Even if a person comes after you for what you have done business-wise, they cannot touch what you have paid yourself. That all sounds pretty good, right? Well, this protection only takes effect for as long as you can clearly show what belongs to the business and what does not. A big mistake you would make, in this case, would be not opening a business bank account and using one account for all your revenues and expenses. If you were to get sued, the court would not know what belongs to you and what accrues from the LLC business. You would thus be at risk of losing even what you had before starting the business. It is important that you understand that this protection only takes effect when you can show this clear divide, which is what we will cover today.
What is a Business Bank Account?
You need this account for your business incomes and expenses. It works for entities and the details required when starting such an account relate to the entity. You will need to produce registration documents to go through with the process. Keep in mind that the LLC Company is an entity separate from you and it can thus operate its own account.
Why does an LLC need a bank account?
Other than protecting yourself from losing what you personally own, there are many reasons why you will need a business bank account for LLC:
- You are required to have one. Once you start operating, you will realize that you have to have such an account and some banks will outrightly refuse to keep your business revenues in any other account. You can thus save yourself the headache and get started immediately.
- The account grows into an asset such that if you ever decide to sell the business, you can include it in the sale price.
- More people will be open to dealing with you as having such an account points to your professionalism. People would not feel safe with giving you their money if they thought it would end up mixed with your personal expenses account. Investors want to see that you have proper measures in place to ensure this separation. Creditors also want to see that you have your operations in order and they will thus see you as more credible when you furnish them with such details.
- You will have an easier time calculating what you need to pay out in taxes, what you have made and what has gone into expenses. Where you hire someone to do the math, they can have the work done in half the time, compared to where you mix all your funds in one place.
- The bank will see you as a credible business and in the future, you can build a relationship that can help you access loans to further your business.
- If you are working from home or have a small business, such an account shows that you are taking your business seriously. It ensures that people will not dismiss it as a hobby as there is a permanency that results from taking such a measure.
7 Best Banks to open account for Small Business in 2021
When shopping around for bank account for LLC options, you need to do your due diligence and learn what various banks have to offer. Compare these features with your needs and decide on the best choice for you based on this. Some of the best options in the industry are:
- Wells Fargo: Best for branch accessibility which works great for people who like frequenting the bank for transactions
- Chase: Best for small business credit cards for people setting up online payment systems
- Capital One: Best for high volume deposits and monthly transactions for businesses that deal with large sums of money
- BlueVine: Best for digital, no-fee business checking accounts for entrepreneurs who want to get things done at the tap of a button
- NBKC: Best for easily accessible, low-fee checking and savings accounts for people who would like to save money on fees
- Axos Bank: Best for interest-yielding checking and savings accounts for businesses keen on growing their credit
- Consumers Credit Union: Best credit union for small business for people who want to start small and expand to other tiers.
Can I Open a Business Bank Account Online in California?
Yes, this LLC bank account option is mainly used by people outside the state or those who have no need for physical locations and mainly conduct their business online. Before going for this option, make sure you can get all your needs covered by assessing the features offered by the service providers.
What Do You Need To Open a Business Bank Account in California?
The bank will generally ask you to provide the following:
- An employer Identification Number (EIN)
- Business formation documents
- An operating agreement
- Your business physical and mailing address
- A valid ID (the bank may insist on a photo ID)
Please note that where an operating agreement is not available and the formation documents do not authorize a person to open an account, you will need to draft an LLC resolution to open bank account. This document gives information on who can open as well as run the account, thus permitting the bank to go ahead with the transaction.
Please note that institutions are different and you may find that the California LLC open bank account requirements are more than those stated above. You should call ahead and find out what you may need, as well as get the following details:
- Costs you need to understand how much you will need to pay to cover basic as well as other services. For example, if you mainly deal with cash, you need to understand how much you will pay when making deposits.
- Location you should ask where the bank is, whether there are any ATMs near you and the opening hours of the same. If you like to go to the bank physically or in the case of an emergency, this will matter a great deal.