Corporations and LLCs are distinct legal entities through which an owner decides to operate their business. Incorporating generally makes it smoother for your business to raise capital or apply for loans, limits personal liability, asset protection, offers tax advantages, and adds a sense of credibility to your business.
A corporate business bank account holds money for investment and saving purposes and their day-to-day banking need
If you are an entrepreneur looking to form a corporation a business bank account is a must. Opening a business checking account is part of the incorporation process. Since the legal entities are detached from their owners, both are legally required to maintain a separate bank account for their business.
In this article, we'll go over how to form company incorporation with a bank account for your separate legal entity.
Note: Try Bonsai Cash if you are looking for a business bank account with no hidden fees or minimums. Our easy to set up merchant account allows you to create sub-accounts instantly to better organize your finances for business taxes, vacations, or retirement. Open an account today.
There are many different banking options with different services, perks or benefits, and costs. Many banks and credit unions give services such as free checking, interest-free saving, or no fees along with a new bank account. After you review the best business bank accounts and pick which one you want, opening an account is pretty straightforward.
A bank would need your proof of identification for both you and your business when you open a new account.
Prior to incorporation, a bank account is not required to be opened. Typically, you'll need to prove incorporation before you open a business account.
A company account is necessary to be used by the company, and the company registration number and documents must be available prior to process the bank account.
Once the company can prove it has been incorporated, all of those documents must be handed over to the bank for processing purposes.
Although banks have different requirements, here are some of the most common documents banks require when you open a business bank account.
If a bank may not properly verify your information, they would ask for more information.
Let's dive into some commonly asked questions in regards to forming a company and business bank accounts.
Yes, you can open a bank account under the corporation's name. In fact, opening a bank account under the corporation name is necessary to show that the company is not mixing the shareholders' personal funds with cash generated from the company.
A corporation that does not open business bank accounts using the corporation's name puts the company's limited liability status in trouble. After all, if you use a personal account under your name, business finances can be mixed up and it would be difficult to separate personal and business property.
The majority of banks will open new bank accounts under the corporation's name and without an EIN. It should be noted, that various banks will require a corporate resolution to open a business account in the corporation's name.
When you are opening a business bank account for your corporation, you do not need to use a local bank account. You can open a new account with Bonsai Cash or other places to open a bank account online.
You'll usually need the same documents and records to prove your business exists and to open a new account.
Note: If you are looking for an easy business account for your corporation, try Bonsai Cash. We have no hidden fees or minimums and our envelopes feature allows you to instantly create as many sub-accounts you need to organize your business funds easier. Open an account today.
No, only sole proprietors may use their personal bank accounts for business purposes. Limited liability companies are separate legal entities and would need a distinct business bank account to maintain legal separation between owner and business. Read more about the best LLC business bank accounts here.
A separate account for an LLC will protect the owner from legal liability and from creditors going after their personal assets or money. Most banks will allow Single-Member LLCs to open a bank account with their Social Security Number.
If you have any tax-related questions or questions on how to meet ongoing obligations, we always recommend you speak with an accounting firm or tax professional.
A neat little tax loophole many U.S. companies take advantage of is company formation in other jurisdictions or countries. The reason is for tax purposes. U.S. corporations can avoid paying federal taxes. The corporation acts as an offshore tax haven to avoid paying a substanital amount of taxes. Until a company comes home, U.S. tax law allows corporations to avoid paying taxes on foreign profits.
It is perfectly legal to set up an offshore corporation as long as you follow the rules in both the home and foreign country you choose to incorporate in.
Many businesses prefer offshore company incorporation in a country with minimal reporting requirements.
Many international businesses try to open U.S. business bank accounts to make doing business with U.S. customers more convenient and simple. The U.S is well known to have the proper protection and private ownership as well as a ton of attractive business opportunities. This makes it an ideal landing spot or environment for businesses.
Because of new regulations, it has become virtually impossible for a foreign company to get a tax number in the States and open corporate bank accounts.
There are many advantages to opening a business bank account for your corporation. Let's review some potential benefits.
One of the main reasons why business owners open a separate business bank account is to avoid commingling personal transactions from business ones. Having a separate account will leave a clear trail for the IRS in case you get audited. Plus, since your business is a separate entity, having its own account would prevent your personal savings from being sought after by creditors. The company would be responsible for the funds and liability, rather than just one person.
Companies may use corporate accounts to manage vendor payments or purchase new items. Corporate accounts can keep business funds safe for the future. Many companies hold their company savings for future purchases.
Corporate business bank accounts help give you better investment opportunities. let's say you have a good year and you put your excess funds in a corporate bank account. You are able to use your savings to reinvest the money into other generate
Many corporate accounts come with other features, such as automatic portfolio balancing, to help your company organize its funds.
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?