Many business owners don't have an EIN upon starting a business, which brings out the question: can you still open a business account without EIN? While there are many benefits to getting an EIN, not everyone needs one.
The main problem is that most banks require your EIN in order to open a business bank account - and without an EIN, the most you can get is a personal account. However, there are several ways for you to separate your personal and business finances.
Note: If you want to open a business bank account without an EIN, try Bonsai Cash. Our account is easy to set up, has no hidden fees or minimums and makes managing your business finances a breeze. Open an account today.
Also referred to as the "Employer Identification Number," the EIN is similar to the social security number, only it's issued for businesses. The EIN is used in order to file the income tax return for your business so that you can get taxed accordingly.
EINs represent a legal requirement for businesses that have more than one person working for the company. For example, if you are operating a sole proprietorship or a single-member LLC, then you don't need an EIN.
That being said, if you are part of a partnership, a multi-member LLC, or a corporation, then the laws of most states will require you to get an EIN for tax purposes. Failing to do so might result in a fine from the IRS.
Banks are very serious when it comes to legality. When you open a business bank account with them, they want to make sure that you are legitimate. This way, they do not put themselves at risk, as it is assumed that most business owners will eventually take on employers.
Because of this, they rarely offer business bank accounts to self-employed people or freelancers. They will just assume that you are simply not authorized to run a business if you can't even get an EIN.
This mostly depends on your situation and where you are opening your account. Most banks will need your employer identification number or a business license when you set up a business bank account, for legal purposes and for bank protection.
If you have a business that supposedly needs employees as well, this may seem like a red flag for your bank and won't offer you the account. Even self-employed people with no employers are seen as a risk, so the bigger banks may not offer business bank accounts.
Still, there are some financial institutions that can offer this benefit. Bonsai Cash, for example, allows freelancers to open a business bank account, even if they do not have employees working for them.
So, you will have to check the bank policies to see whether they accept your request or not, even without the EIN. You cannot open a business bank account with only an EIN.
If you are allowed to get a business bank account without an EIN, the chances are that you will be required to give your social security number instead of the regular business tax ID number.
Check with the financial institution, to see the exact requirements for setting up a small business checking account.
Getting a business bank account can open some doors for every business owner. Indeed, you can get another personal bank account to keep your business and personal finances separated.
However, most business bank accounts offer even more than that. Here is what you may reap if you can get a business account, with or without the EIN.
Business owners using their personal accounts for business purposes have one disadvantage: if anything happens to their business and they get sued, then their personal accounts are directly connected - and therefore, fully liable.
Whether you are a sole proprietor or multi-member LLC, you always need to separate your business and personal finances. Many business structures which act as a separate legal entity require a distinct bank account (without an LLC you can open a business bank account). This way, they will not be able to seize assets from your personal account, because technically, it is not connected.
Many banks offering merchant services will also provide something called "merchant accounts." These accounts are business accounts with an advantage.
Not every client wants their purchases disclosed, and a merchant service offers them buyer's protection. This means that their purchases are protected, along with their identity.
As their name suggests, business bank accounts are made for business. Not every client will take you seriously if you ask them to write a check in your name. However, if it's written to a business bank account, things change.
Plus, if you get a business bank account, customers will be able to make payments using a credit card account - something that will make it much easier for you to conduct business.
Employees listed under you will also be able to handle your new business bank account on your behalf.
Most banks provide lines of business credit that you may use in case of emergency. They also offer credit cards that you may use to build your business credit score or improve your business history.
Depending on the bank that you go for, you may or may not need an EIN. That being said, if the financial provider offers you a bank account for business even without the EIN, then they probably offer business credit cards as well.
Whether you are trying to obtain a business bank account without an EIN or not, financial institutions typically allow you to choose from the following account types:
A checking account is the first type of account that you need to get, as it allows you to make active transactions.
You use this account to manage payroll, make payments and conduct a variety of financial tasks. It's also the account where you will receive your payments. Read more about the impact of business accounts on credit score.
Aside from the checking account, you can also get a savings account where you may put extra earnings. A business savings account is great because it builds interest over time based on the amount of money that your business makes.
If you want to keep your personal finances separate from your business ones, you may want to consider using a merchant account as well. This will allow you to accept debit and credit card payments.
Depending on who you are doing your business banking with, check whether they provide merchant accounts or not. If they offer a business bank account without an EIN, the chances are that you can also get a merchant account.
You might want to do some research before you settle on one particular account. Find one that meets your needs. Bonsai, for example, allows you to get paid in debit and credit cards, as well as ACH, so you might want to take it into consideration.
Credit cards are a good option to have around in case of an emergency or purchasing miscellaneous items. This will give you a line of access to a fair amount of business credit, which you can tap into and pay back whenever you have to make a purchase.
The main advantage of a credit card is that if your small business already has a bad credit history, then you may use the credit card to build it up. This way, you will get much better rates for potential small business loans, which can help you grow your business in the future.
Even if you don't need an EIN, there are still a couple of reasons why you should consider getting one after all. Here is why:
While it may be possible to open a business bank account without an EIN, your options may be fairly limited.
Unless you strike gold from the first research sections, you'll have a lot of banks to rule out. An EIN can offer more opportunities for choosing a bank account.
Very often, even if you do get a business checking account, many banks will feel reluctant in giving you a business loan. Some lenders do offer California finance lender loans without an EIN, but you may not have the same benefits as if you'd have an EIN.
As a business owner, you should keep your personal assets separate from your business finances. If you get an EIN, then you will be able to obtain a business credit card, so that you can keep your business expenses separate.
In the absence of an employer identification number, you will have to use your social security number - something that can put you at risk of identity theft.
The more you use the SSN, the higher the risk will be. Therefore, if you use the EIN to open a business bank account, your own identity remains protected.
Even if you don't have an EIN, sole proprietors and single-member LLCs can still be legitimate operations. However, not only will the EIN allow you to hire employees, but it will also give you a more professional look. This can be very handy if you want to establish trust and reliability with vendors and other potential partners.
Even without an EIN, it is fairly easy to open a business bank account using Bonsai Cash. Here are the steps that you have to go through:
When you create a business bank account using Bonsai, you have to add your full name, a password, your country of residence, and the currency that you are planning to deal with. Bonsai Cash is a guaranteed business account.
Once you have created the business account, you need to answer a couple of questions in regard to your work. This can be your type of work and other work-related things that you are involved with.
You're probably using a credit card to handle your own finances. Add the billing information, and you will obtain access to Bonsai Cash. You will also get a 2-week trial, which can help you save money.
Now that you've set up your Bonsai account, it is time you begin using it. Bonsai can help you with payment management, business finances, tax season, and many more.
It is possible to open a business bank account without an EIN. That being said, you might have to do a bit of research as to what banks accept SSNs instead of EINs. Do some research on their requirements and settle on the one that fits your needs the most.
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?