Are you still using a personal checking account for your Limited Liability Company? That’s a big mistake and we are going to tell you precisely why.
In this post, we give you not one but 8 reasons why it makes sense to have a business bank account for your LLC. And not just any account, it needs to be an LLC business bank account.
Then to close it off, we will go ahead and recommend our top business banks for LLCs. With so many of them to choose from, we understand that settling for one can be overwhelming.
Hopefully, this post is exactly what you need to make the right decision regarding a business bank account and your financials.
Note: Opening a business bank account is not hard. Bonsai Cash is an LLC bank account that is easy to set up and has no hidden fees or monthly minimum requirements. Our business account allows you to create as many sub-accounts as you need to organize for taxes. Open an account today.
Let's quickly review all the reasons why you should have a distinct bank account for your LLC.
Can you imagine how hard it will be to maintain your business books if your personal and business finances are mixed? If you are hiring someone to do bookkeeping for you it means you have to pay them more because of the added hassle.
All that can be avoided by having a separate account dedicated to your LLC financials only.
The main reason that business owners opt to register their businesses as LLCs is that this business structure offers protection against liability. In case the business goes into debt, the creditors cannot come after your personal finances.
However, if you are using your personal bank account for business then you are not drawing a line between yourself and the business and it could lead to piercing the corporate veil. This is a situation where the court removes liability protection because of bad business practices.
In effect, this would allow creditors to use the money in your account to offset the business debts even when the money didn’t come from the business.
Business owners are always looking for a way to minimize their tax burden and one perfect and legal way to do it is to take advantage of tax write-offs. The internal revenue service allows you to deduct business expenses from your taxable income.
However, this is only possible if you have a separate business checking account for your LLC. If you are using your personal account for the business, the IRS will not recognize your business as legitimate. Discover how to separate business and personal taxes here.
Your business bank statements play the biggest role when applying for a business loan or a business credit card. If you want to stand a chance of securing a big loan without much hassle, then you will need to open a separate business account early in your business so that you can begin building your credit history.
The key to running a profitable business is to never lose track of the flow of money in the business. Having a separate bank account allows you to easily track money coming in and money coming out so that you know when the business is making a profit and when it’s making a loss.
People are beginning to ditch cash in preference for card payments. Consequently, if your LLC has no way of receiving debit or credit card payments it could lead to lost business. Personal bank accounts don’t have a provision to receive these kinds of payments but business checking accounts do.
This is another reason why it makes sense not to just have a separate bank account for your LLC but a separate business bank account.
Customers will have increased trust in your business when they make payments to a business bank account as opposed to a personal bank account.
This is especially true for online transactions where the customer has never met the business owner and is a bit skeptical about completing the payment.
Some banks hold special events for their clients as a way to attract more customers and also to help their client's businesses grow. These events can be incredible sources of business knowledge that you can apply to your LLC to advance it further.
Opening an LLC bank account is a bit different from opening a personal bank account. The bank will need that you provide some documents before they can approve the account. The documents may vary depending on the bank but we have listed some of the most common ones that every bank will require from you.
Let's quickly break down our top picks for a business account. Starting with our own.
Bonsai Cash is a new checking account that’s perfect for small businesses because of its simplicity. The account makes it incredibly easy to manage your business funds.
You will particularly love the Bonsai envelope feature. It allows you to create envelopes that work as sub-accounts within the main account. And, you can create as many envelopes as you want.
For instance, you can have an envelope for tax money, another one for employee salary, and another one for emergencies. You can then set your account so that every time you receive money in your account, a certain percentage of the money is sent to a specific envelope.
This really simplifies things because you don’t have to manually move the money into envelopes and your bills will never catch you unprepared.
Bonsai Cash is completely free to open and use. No initial deposit, no minimum balance to be maintained, and no monthly service fees.
Also, immediately after you open a Bonsai Cash account you get a virtual card that you can use for online payments and subscriptions as you wait for your physical card to be ready.
This account can be integrated with any payment service you are using which enables you to receive payments directly into your account. No credit checks either so you'll have a guaranteed business checking account.
The daily transaction limit for Bonsai Cash is $5300. That is $300 for ATM withdrawals, $2,000 for card transactions, and $3,000 for transfers to external banks.
If you don’t mind the limitations that come with a traditional bank with a physical premise then Chase is a great option to consider. It has all the services you need for your LLC. Free business checking accounts, a savings account, a merchant services account, and business financing through lines of credit and business loans.
And to their credit, the bank has done a great job with their web app and mobile app to try and offer the same level of flexibility you get with online banking solutions.
With the app, you can manage alerts, schedule automatic payments, make international money transfers, and generate paperless reports to give you an overview of your business income and spending.
Unfortunately, the bank is not completely free to use. You only get 20 free transactions. For any other transaction after that, you will be required to pay 40 cents. You also get free deposits for up to $5,000. After that, you will be charged $2.50 for every $1,000 deposit you make.
Chase bank also requires a monthly service fee of $15 but if certain conditions are met the fee can be waived. Some of these conditions include maintaining a daily balance of $2,000 in the account and making purchases of up to $2000 using a Chase business card.
If you are looking for a business savings account for your LLC, Live Oak Bank will be a good choice. The fact that it’s an online account means it’s not limited by location or time. The account is also free to open. There is no initial deposit required and it has no monthly maintenance fee.
However, they only allow 6 free withdrawals or transfers per statement cycle. The fee for extra transactions is $10.
The annual percentage yield for Live Oak bank is 0.50% which is above the national average.
To make deposits into your Live Oak savings account you can use ACH payment, mobile check deposit, mailed check, or wire transfers. Unfortunately, the bank does not support cash deposits.
On the upside, as you build your credibility with Live Oak bank you may qualify for SBA loans and other types of business loans.
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?