As a business owner, you might be aware that you need separate checking accounts for your business, but one other question remains: "can I use the same checking account for two businesses?" Or do you need to open different business bank accounts for each?
It might seem simpler for a business owner to use just one business account, or better yet, their personal bank accounts - but what does the law say here? Well, there are indeed certain limitations that you should know about, and you can find them out by reading our guide.
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As an owner of multiple businesses, you may feel tempted to simplify your job and use the same account for all the companies that you are running. Sometimes, this can be a possibility, but other times, you may not be allowed.
This may depend not only on the business entity that you are running but also on the bank that you are collaborating with. For instance, some banks may only allow you to associate one account for one business.
With that in mind, other banks allow you to have one bank account for two separate companies. The condition is that the business entities need to be connected - typically, by the same name and the same field.
As the owner of a sole proprietorship, you have the choice of opening multiple bank accounts. However, the law also allows you to use the same bank account for your personal and business finances. You may even use your personal checking account, as long as it is under the same name.
Even in these circumstances, most financial institutions advise against using only one business bank account for every small business that you own. This is because managing your business will be more difficult.
If you start a new business, then you might want to get a separate account so that you can keep an eye on your business finances. If you don't, it might cause you to lose track of your cash flow.
Check out our review of the best business bank accounts.
As mentioned, if you are a sole proprietor running the same type of business under the same name, then you may use the same account.
However, in certain situations, you may be required by the law to open multiple accounts. This includes:
In case you have a DBA (Doing Business As), you also need a separate business bank account. That being said, if you have a regular sole proprietorship or partnership, the choice is yours.
No matter if you have one or more business entities, you may need multiple business bank accounts of different types, all of which will be connected to one another. These accounts can be opened by the same bank and will cover different functions.
The different types of bank accounts are:
Typically, each business will need at least a business checking account. However, it is recommended that you open at least one savings account as well.
As an alternative, you may open more than one account for deposits and transactions, one for each business that you own, but use just one business savings account.
By using one business savings account, the monthly deposits added will add even more interest. And since you will not be making any money transfers from that account, you won't have to worry about the cash flow.
There are several advantages to using one business checking account for multiple business entities, which includes:
Juggling multiple business bank accounts can be rather confusing, as you will have to remember the details of each account when making a transaction. Each business checking account may have its own number of transactions and minimum balance, and it's very easy to lose track of them.
That being said, if you are using just one business bank account, then you won't have to remember endless requirements. This will make it much easier for you to keep your transactions going.
When you have multiple business bank accounts, it might become rather difficult to keep an eye on your profits. With everything separated, it might feel like you are earning too little, or you may simply overestimate how much you are earning.
That being said, if you just open one business bank account, your profits will be all in one place. This will help improve your business and personal finances, as you will be able to take accurate business decisions.
The more business bank accounts you have, the higher your chances of falling victim to fraud will be. Multiple accounts will give hackers more opportunities to gain access to your personal information. By using just one account backed up by the Federal Deposit Insurance Corporation, for example, you'll have fewer reasons to worry.
People using multiple business bank accounts have a harder time building credit as compared to someone who has just one account. This is because their credit and transactions are all over the place, making them seem somewhat unreliable.
Many California finance lender loans require you to have good credit, and they are more likely to offer you business financing if you have well-polished business bank accounts. This improved credit may also help you in the eyes of the financial institution of choice, improving your interest rates.
Whether your type of business allows it or not, here are a few reasons why you should not use the same business bank account for two different business entities:
If you are the owner of a sole proprietorship, then legally, you are allowed to use your personal account for as many business projects as you want. However, things change when you go higher than that.
As the owner of an LLC or a corporation, you will have to pay bills that you normally would not have to deal with as a sole proprietor. As a result, the law requires you to open multiple business bank accounts for each separate business. You may try to use the same account - but it will be against the law.
When operating multiple business entities, it might be rather easy to lose yourself in the transactions. You'll need to keep track of payments from clients, payroll, money for tax time - something that may be very confusing to do when you can't differentiate which payment went where.
By having each business with its respective account, it will be much easier for you to keep track of these expenses. This way, you won't accidentally file for deductions that you would not have been entitled to.
Many sole proprietors use their personal checking accounts as stand-ins for their small business accounts. However, the problem with this is that their personal assets may be held liable.
If your small business goes into debt and you link just one account, then in the event of debt collection, all of the funds will be pulled from there. It does not matter if your other business is going well, all the money will be in danger.
However, if you go for separate accounts, then your business's finances will be separated as well. In the event of debt, the debt will be settled with the account that you set for it.
Granted, by just using your first business account without opening a second one, you get a certain degree of protection. Hackers could only get into that account - if you use a secure bank and have financial protection, you have no reason to worry.
However, if hackers or scammers do manage to get past your bank's security system, your personal data and your money will be exposed. By deciding against different accounts for separate businesses, you may lose profits from both companies.
With that in mind, if you open a second checking account for your second business, you may use it as an emergency option to store your money in the event of someone breaking into the system. At least you'll know that some of your funds have been saved from the attack.
Small business owners that use the same account for multiple businesses may not appear as trustworthy. Typically, separate designated bank accounts for each business denote professionalism - so, if you are just putting money in your personal account, your clients may be reluctant to collaborate with you.
On the other hand, if you go for multiple accounts, then you'll automatically appear more professional. You will show an ability to stay organized, which will definitely help your business name.
As the owner of a small business, you may eventually realize that not all accounts are the same, and they all serve different business needs. For example, one business may require you to make different numbers of transactions or may offer you a better deal in terms of benefits.
If you go for different accounts rather than just one, you'll be able to access financial products specific to the needs of your business. This will help you manage your money with more ease.
If you are a sole proprietor, the law allows you to use the same account for more than one business. If you go any higher than a sole proprietorship (i.e., an LLC or a corporation), then it won't be possible.
There are some advantages to using the same account for all your business ideas, but even if you can, it doesn't mean that you should. To keep your expenses separate and to organize your finances, you may want to consider opening a separate business checking account for every business.
If you need separate accounts to organize your business's funds, try Bonsai Cash. At the push of a button, you could create envelopes or sub-accounts to organize your business's money. Sign up today.
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?