By The LLC Attorney Team
Feb 22, 2024Opening a bank account for your LLC is a necessity. It reduces risk during an audit, provides asset protection, makes bookkeeping easier, and can avoid partnership disputes. Even if we don’t open your checking account, please ensure this is done.
After filing Articles of Organization and obtaining an EIN from the IRS, then you can open an account. Most financial institutions require you to have a signed operating agreement, but not all. If you use our account opening service we handle all this for you.
Given how regulated the banking industry is nearly every institution has the same rules and requirements to open a business account. Bankers need you to provide:
The above documents are standard and the minimum needed to prove the company is in good standing, and for the bank to know who they are doing business with. Gone are the days when you could open anonymous bank accounts or use a library card due to anti-money laundering efforts and the fight against terrorism.
Many companies tempt you with an offer to purchase a “Resolution to Open a Bank Account”, but this is really an attempt to up-charge you for something that isn’t needed. We include it for free to make a point about our competition, but we haven’t met a bank that requires it.
The person opening the account must have the authority to do so. This isn’t as intimidating as it seems. Owners and managers are signers for the company and may file the paperwork. Their signing authority can be demonstrated using a signed operating agreement. Generally, only one person needs to be present. Others can digitally sign and provide their identity verification.
A single-member LLC should still obtain an EIN and open a bank account. They can open one using their Social Security Number, or use their personal account, but this is less than optimal for several reasons.
If the Internal Revenue Service audits your account, then having a firm separation between personal and business finances makes justifying business expenses easier.
If you are sued, then commingling personal and business funds puts all your assets at risk. It can be hard to prove what is the company’s money, plus poor record keeping could lead a judge to pierce the corporate veil.
Having a separate account also makes bookkeeping easier, and enables you to tell how your company is doing independent of your personal checking account balances. Finally, with our bank opening service, we can have your account open the same day we form your limited liability company. We make it as easy as possible for you.
It’s important to distinguish between a Single Member LLC, which is taxed as a Sole Proprietorship, and a true Sole Proprietorship which has not filed Articles of Organization with the state. The former refers simply to a tax status. The LLC still has the corporate veil. The latter refers to someone doing business under their own name or only a DBA. There is no formal business entity.
In such cases, a bank isn’t needed for asset protection. However, it can be useful for keeping personal and business assets separate. This makes determining whether your company is turning a profit or loss without having to separate personal transactions from the bank statements. Ultimately, it’s a personal choice for whether the effort is worth it.
Some industries are not currently supported by a majority of banks and must seek alternative accommodations. This isn’t to say there is no bank that will accept companies from the industries listed below, but specialized bankers must be sought after.
If your company falls into one of these categories, then traditional banks such as Wells Fargo, Citigroup, and Morgan Stanley will ask you to look elsewhere. We have had some clients successfully placed with Swiss Bankers for these industries where appropriate.
To be honest it’s 2024. Almost every bank does, or should, allow online account opening services. Unfortunately, some of the bigger banks don’t make this easy because they don’t have to. We recommend working with an online provider with a robust mobile application. Many even waive wire fees and minimum account balances. Going to Bank of America, Chase, US Bank or the traditional financial institutions is no longer necessary to receive personalized and fast service.
Non-US residents face unique challenges when opening financial accounts. This primarily revolves around identity verification and prohibited countries. US banks are under increased government scrutiny to confirm the identities of their customers.
We believe Relay is one of the best banks given their willingness to work with international clients. The application can be completed online with only a passport. You may sign up on your own or use our free service as part of the bank onboarding process.
Each bank maintains its own list based on their internal risk factors, but in general residents of the following countries are barred from opening US financial accounts:
We believe the best bank account is a free bank account. They charge enough in other fees, and make money from their loan departments, that there should be no monthly fee. Minimum contributions are another tactic used by banks to separate companies from their hard earned money.
With the proliferation of neo-banks, there has been an explosion in available offerings. Such banks don’t have their own charter, but rather use or extend an existing bank’s charter. Each is unique and you should find one whose checking or savings account best fits your company.
FDIC means Federal Deposit Insurance Corporation and is a government run program funded by banks to ensure depositors don’t lose their money in the event of a bank run.
The Great Financial Crisis (GFC) and recent regional bank failures are a reminder to choose carefully. While depositors have been made whole via the FDIC, or an acquisition, it’s important to note that technically only the first $250,000 in deposits are insured.
Some institutions can spread funds between multiple banks allowing for coverage several times this limit. Our preferred bank is Relay Financial which can spread your deposits between ten banks, for a total of $2,500,000 in FDIC coverage.
Many newer banks offer direct integrations with other SaaS companies. For example, a connection to Xero or Quickbooks to make bookkeeping easier. Most connect with payment processors such as PayPal or Stripe, but not all with platforms like Venmo or Zelle.
Mobile check deposits are standard, but being able to mail in or out a check is a feature not all new banks have. Further, online only banks can make depositing cash a little more difficult. While this won’t be an issue in some industries, e.g. e-commerce, it would be for a food truck which transacts primarily in cash.
These laws were largely a function of the Patriot Act and have been honed since. They are in place to force compliance on bank account openings. Those who have seen “The Laundromat” have seen one side of this, but there have also been large fines levied on banks for laundering drug and terrorist money. These spurred new statutes which require banks to better understand who the Ultimate Beneficial Owners (UBOs) of accounts are and the source of funds.
At the risk of sounding like a broken record… yes! Without a proper account there is little reason to form an LLC. Most open an LLC to minimize risk and taxes, while providing asset protection and sometimes privacy. These are all jeopardized by failing to open a bank account for your LLC.
If you use a personal account for business, then you are commingling funds which is not looked upon favorably and can easily lead to partnership disputes. Do you want to share your personal checking account details with partners and explain which transactions are which? The only disadvantage is having to open a new account, but as covered above neo-banks have made online applications easy.
With proper documentation and the right banking partner, you can safeguard your business's financial interests effectively. If you have any questions about forming your LLC, please complete our contact form.