There are some business bank account requirements that you have to meet to get it approved for a new checking account. This brings us to our topic today. Is being an LLC one of those requirements?
Can you open a business bank account as a sole proprietorship or as a partnership?
The short answer is, Yes. You can open a bank account without an LLC. As long as you are running a formally registered business, you can and should open a business bank account.
It will be impossible to achieve real success unless you have a separate business bank account to manage your finances.
Having one account for your personal and business finances will make it really hard to track your business income and spending.
Also, the Internal revenue service (IRS) won't recognize your business as legit if you are using a personal bank account. This means you can't take advantage of tax deductions to reduce your tax debt.
Not to mention having a bank account tied to your business is a great step in building business credit.
Note: If you are looking to open the best business bank account for LLCs, try Bonsai Cash. Our account has no hidden fees or daily balance minimums and is guaranteed for approval. Our envelopes feature allows you to instantly create as many sub-accounts you need to organize your finances. Open an account today.
What about sole proprietorships that don’t have an EIN to open a business bank account? Don’t banks require an EIN to approve a business account?
Well, every bank will need that you provide them with your EIN also referred to as tax ID before they can approve your account.
However, Sole Proprietorships are not legally obligated to have an EIN. Therefore, most banks also accept the sole proprietor’s social security number instead of a tax ID when approving the business bank account.
But, that’s the only exception. All other business entities including partnerships need an EIN to open a business bank account.
Now that we have that out of the way, what are the other requirements for opening a business bank account? Follow along as we address the most critical documents you need to have to get your business account approved.
Better yet, we will also touch on factors to consider when choosing a bank because it’s not enough that you have a business bank account. You need to work with a bank that provides you with the right tools to help your business grow.
Are you really who you say you are? The bank will need a government-issued photo ID not only to verify your identity but also to ensure that not just anybody can access your account.
Both your driver’s license and passport are acceptable forms of identification.
Some banks may also require that you provide your personal mailing address and social security number.
And if you are a business with multiple owners, most banks typically require that you provide the personal details of all owners with a stake of 25% or above in your business
Individuals have social security numbers, businesses have an employer identification number. Unless you are a sole proprietorship you already have an EIN. As it turns out the EIN is a mandatory document that you need to have if you want to open a business bank account. You cannot open a bank account with just an EIN either.
It’s one of the ways used by banks to verify the legitimacy of your business.
If you don’t have one, don’t worry. The process of applying for one is very straightforward and won’t cost you a dime. Apply on the IRS website here.
The other way for banks to prove the legitimacy of your business is through your business formation documents.
So, if you are a sole proprietor you will need to have your business name registration form ready. If you are using another name other than your own for the business, you also need to have a copy of your Doing Business As (DBA) certificate.
If it’s a partnership, you will need to provide the bank with the partnership agreement document.
These documents are necessary for the bank to confirm important details such as your business name, address, entity type, industry, and the type of business you are running.
The partnership agreement helps the bank determine the role each member plays and their specific rights in the business.
The bank needs to determine that you are operating your business legally. A business license helps them do that. In states that don’t need businesses to have a general license like Texas, the banks will have other verification methods.
This only applies when you are looking to open a merchant's service account. This is the business bank account for processing debit and credit cards. Your monthly credit revenue or proof of income documents gives the bank an estimate of your expected income from credit cards and debit cards.
Let's quickly review the steps to open a business bank account for LLC owners.
Just like personal bank accounts, business bank accounts come in several forms. The 3 main types are checking accounts, savings accounts, and merchant services accounts.
This account allows you to deposit and withdraw your money at any time. It’s perfect for receiving payment from your customers and holding money for everyday business use. When you want to spend the money on activities such as buying equipment, paying employees, and rent, you just withdraw the money or use the assigned debit card.
This is the account you use to hold money that you have no intention of using immediately. You can deposit money in your savings account at any time but, there are conditions for withdrawing. For instance, you can’t withdraw the money until a certain period is over. Breaking these rules will have consequences. For instance, withdrawing the money before it has matured may see you lose any interest it may have earned.
When choosing a bank to open a business savings account lookout for factors such as minimum deposit that will earn you interest and percentage yield every year.
If you plan on receiving debit and credit card payments, you will need to open a merchant services account on top of a checking account.
How do you choose the best business bank account for LLC owners? By putting these factors into consideration.
Does the business bank account have no monthly account fees? What about transaction fees? Some banks are completely free to use making them the perfect choice for your business account. The fees may seem small at first glance but cumulatively they will end up costing you money that could have been spent on other business needs. Be sure to carefully read the fine lines and compare how much it would cost to open a business checking account.
Every bank has a limit on the total amount that can be transacted on a single day. If your bank of choice has a very small limit it could hinder your business operations.
This mostly applies to business savings accounts but, there are banking providers that allow you to earn interest on deposits made in your checking account. However, this sort of arrangement usually has conditions so don’t just jump into any bank that promises interest on your checking account.
It would be very unfortunate if you have money in your account but can’t access it because there is no ATM or bank branch near you. And while still on ATMs, there are banks that allow fee-free ATM withdrawals. That’s something to consider.
It’s not enough that you can easily deposit and withdraw money from your account. What other options are there to manage your finance. Can you set the account to make automatic payments, does the bank have a dedicated web app or mobile app, and can the account generate automatic reports to help track your finances?
In short, there are a ton of banks accepting new business accounts. Just compare which one best suits your specific needs.
Another really important decision you will need to make when choosing a bank is whether to go the traditional way or opt for an online financial institution. A lot of business owners are now preferring to open online business bank accounts because of the convenience they offer.
Unlike in a traditional setup, online banks are not limited by time or location. You won’t have to leave important business matters unattended just so that you don’t find the bank closed. With online accounts, everything is virtual. And to compensate for the lack of physical location, online banking services tend to have the best customer service.
You don’t have to wait in line for hours to be attended to. Instead, you call their service desk in a few minutes you are talking to your account manager.
Also when it comes to the actual process of opening an account, online accounts are much easier to open. Sure, in some cases you may have to wait longer to get your documents verified but, overall applying online is less stressful than traditional.
The other great thing about online bank accounts is that they are not as reserved as traditional banks. Traditional banks may deny you a business bank account based on how you managed your personal accounts. Online banks, on the other hand, are more accommodating and are willing to give second chances even to those with bad credit or a poor ChexSystems score.
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.
Bonsai Cash is our new guaranteed business bank account that provides you with an easy and efficient way to manage, save, and spend your funds. The account ticks all the best features of a business checking account.
For starters, it can be integrated with any payment tool including our own Bonsai Payment 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.
However, the one feature that really makes this account stand out is the envelope feature. The envelopes work as sub-accounts within the main business account where you can hold money for specific purposes. For instance, you can have an envelope for tax money, employee salary, savings, or any other business use you can think of.
But here is the best part. You don’t have to manually transfer money into these envelopes. You can set the account so that any time you receive funds a certain percentage is sent to a specific envelope. Now, even as you use the money for other purposes you already know the important needs are taken care of.
The daily transaction limit for this account is $300 for ATM withdrawals, $2000 for card transactions, and $3000 for transfers to external banks. All that translates to a total of $5300 per day.
As of right now, Bonsai Cash is free to open and maintain. That means no initial deposit, no minimum balance to maintain, no transaction costs, and no monthly fees.
How does that sound?
Anybody running a formally registered business can and should open a separate LLC business bank account to keep personal finances distinct from business finances. So it’s not limited to LLCs.
The one most important file you should not miss is an EIN. This is a mandatory requirement unless you are running a sole proprietorship or a single-member LLC in which case you can use your social security number to get the account approved.
The banks will also need other details to approve your account and we have explored all of them.
We have also determined that one of the most important decisions you are going to make when opening your account is whether to go the traditional way or open a business bank account online banking solution.
Spoiler alert, online banking is the future. We are not just saying this, we believe it. That’s why we ended with a recommendation for one of the best business checking accounts you can choose for your business.
Hopefully, you will use the information in this post to make a smart decision.
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?