One of the biggest mistakes you can make as a business owner is to have the same bank account for personal and business finances. It makes it unnecessarily hard to measure how your business is performing financially because you have all these transactions happening that are not business-related.
That’s why the very first step after registering your business should be to open a business bank account. However, unlike a personal bank account, business bank accounts come with unique requirements that you have to fulfill to get the account approved.
In this post, we explore the whole process of opening a business bank account including the necessary documents, the different types of business bank accounts, and how to choose the best bank for your business.
Note: If you want an easy guaranteed business bank account, then try Bonsai Cash. Our checking account has no hidden fees or minimums and is simple to create. Our account can help you manage your finances, save on taxes, and get paid faster. Try it our for yourself. Sign up today.
We will try to cover everything you need to open a business bank account but, the requirements may vary depending on the bank, your business entity, and the location of your business.
This is a mandatory requirement for anyone looking to open a business bank account. After all, the bank needs to confirm that you are who you say you are and also ensure that nobody else can access your account.
For personal identification, you are required to present a government-issued photo ID which could be your driver’s license or your passport.
Some banks may also require that you provide your personal mailing address and social security number.
If you are a business with many owners, most banks typically require that you provide the personal details of all owners with a stake of 25% or above in your business.
This is a mandatory requirement for all business structures except a sole proprietorship. Although you can't open a bank account with just an EIN, it is a necessary provision. It’s not a legal requirement for sole proprietors to have an Employer identification number and, therefore, the bank allows them to use their social security number instead.
For other business structures, you'd need to check the bank's requirements to open a business checking account without an EIN.
You will be required to have a copy of your business formation documents before you open a business account.
For sole proprietorships, this means the business name registration form and DBA certificate if applicable. If you are a partnership then it's the Partnership agreement.
For LLCs, it means Articles of Organization, and for Corporations, it means Articles of Incorporation.
Basically, the bank is looking for information about the business such as business name, address, DBA name, entity type, industry, and the type of business you are running.
The bank needs documents highlighting the ownership agreements between members in an LLC, Corporations, and partners. These will outline the responsibility of each member and their specific rights in the business.
Your business license is necessary for the financial institution to prove that you have permission to legally conduct business in your state or city. I know that some states don’t require that businesses have operating licenses and in these cases, the bank will make an exception.
If your business wishes to open a merchants service account to process debit and credit cards, it’s required that they provide the bank with the business's average credit card revenue. If it’s a new business, you won’t have this information so what the bank will need is an estimate of the expected revenue from credit cards.
Let's review all the steps you need to take to open a bank account.
Here are the three main types of business bank accounts that you can open:
This is an account that allows you to receive and withdraw money at any time. It’s the account you open for everyday use such as buying business equipment, paying employees, rent, and other business expenses.
When opening a checking account with any bank consider these factors, maximum monthly transactions, bank accessibility, and all related fees. Some banks also offer interest on business checking accounts under certain conditions so, watch out for those.
This is an account for business income that you want to save for the long term. And the best thing about business savings accounts is that they earn you interest. However, they will come with conditions like a minimum deposit that can earn interest and the inability to withdraw until a certain period has elapsed.
The annual percentage yield and account fees also vary from one bank to the other.
This is the account you open if you plan on receiving debit and credit card payments. Something to note is you can’t open a merchant’s service account unless you first have a checking account.
Once you know the account you need for your business, the next step is to find a bank with the best benefits. Here are some things to consider when choosing a bank for your business.
We have already looked at the documents that banks will require in order to approve your business bank account. Put all of them in order and visit your bank of choice.
If it’s an online bank, the better, you can complete the application process from anywhere.
Complete the application process and wait for the approval. The approval period will vary for different banks.
Once they have certified that the documents are okay, your account becomes activated. However, some banks may require that you make an initial deposit to activate the account.
Bonsai Cash is an automatically approved business bank account so you do not need to apply.
It depends. Each has its own benefits but if I was to go with one then it would be online banking because of the convenience it offers.
And this is not just because you can apply from anywhere, it’s also because online banking comes with more flexibility. They give you more ways to manage your accounts and their customer service is always very available and eager to help.
And, you don’t have to look far to understand what I’m talking about. We have just the perfect online banking solution for you..
There are many benefits of having a business bank account. We'll quickly go over some of them.
If you have just one account for business and personal use and the business suffers major losses or goes bankrupt, creditors will come after the whole account including income that did not come from the business. It doesn’t matter if you are running a limited liability company or a corporation both of which offer personal liability protection.
Unless you have a business bank account, the IRS will assume you are running your business as a hobby and will, therefore, not allow you to deduct business expenses from your income. So, you end up paying more tax than you should.
As we mentioned, having one account for both business and personal needs gives you the extra work of separating personal transactions from business transactions.
Personal bank accounts do not support payments through debit and credit cards which is a major limitation in these current times. You end up losing business because customers can only pay through cash or check.
If you are running a partnership, a multi-member LLC, or a corporation, your partners also want to know what’s going on with the business funds. With a business account, they can all have access but with a personal account, it’s tricky because you have other funds in the account that are not business-related.
Your business looks more professional when transacting through a business account complete with details about your business than with a personal account. Also, as a customer, you feel more secure making payments to a business than to an individual. Especially if it’s an online business and you have not personally met the business owner.
Bonsai Cash is our new business checking account that provides you with an easy and efficient way to manage, save, and spend your funds. The tool ticks all the best features of a business checking account.
To begin with, you can integrate it with our other tool, Bonsai Payment, or any other tool you have to facilitate direct payments to the checking account. If you want to make purchases or fund a subscription, Bonsai Cash provides you with both virtual and physical cards to use.
With payments, you have the option to use virtual or physical cards.
But, if there is one feature that makes this online business checking account stand out is the ability to create envelopes for more granular management of cash.
The envelopes are meant to help you save money for different purposes. For instance, you can create an envelope for tax money where you will be saving only funds meant to pay your annual or quarterly tax.
Better yet you can automate the account so that when money comes into the checking account a certain percentage gets automatically allocated to a certain envelope.
Bonsai cash also supports ATM withdrawals although you can only withdraw $300 in a single day.
As of right now, Bonsai does not charge you anything for transactions you make. Open an account for free today.
If there is one thing that’s clear up to this point is you can’t run a successful business without a separate business bank account. And now that you know everything you need to open one, the real question becomes which is the best account for you? And we have given you an option to consider. Ready to give it a try?
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?