Can a Business Use a Personal Bank Account?
Can a business use a personal bank account is a question some new businesses might want to know.3 min read
Can a business use a personal bank account is a question some new businesses might want to know. The quick answer is yes, you can use a personal bank account for your business, but there is more to it than that. The bank you use and the type of business you have are some of the things that it will all depend on.
Using a Personal Bank Account for Business
As of November 2014, the United States and the UK agreed to provide basic bank accounts that are fee-free. This deal was reached in regards to personal accounts. For this reason, many people decide to use their personal bank account for their new business. It is not required by the HMRC that a business have a separate bank account; it is only required that the transactions be kept separate. You are actually not even required to have a bank account at all by the HMRC, but unless your business runs only using cash, it might prove difficult to operate without some sort of bank account.
The bank you use for your personal banking may not allow you to use your account for business banking. Each bank will have its own policies in regards to how accounts can be used. It's important for you and your new business to abide by the rules; otherwise, there is a risk that your account could be closed altogether. Although opening another account elsewhere isn't difficult, there are problems that could arise with having your account suddenly closed.
Disadvantages of Using a Personal Bank Account
It might seem easier just to use a personal bank account for your new business rather than hassle with opening a separate business account, but there are some disadvantages to this. Some of the problems are:
- Gives an unprofessional appearance.
- Business name not on checks.
- Unable to conduct banking in the company name.
- Difficult to prove separate transactions for tax purposes.
- Mixing of funds.
Advantages of Using a Personal Account for Your Business
Many new businesses use their personal bank accounts at first, but in the long run, you have to consider your business as a separate entity. This means getting the business its own bank account. The benefits of using a personal account for a new business are:
- Banking is hassle-free.
- Personal funds can be used to obtain credit.
- No waiting for paperwork to go through.
- Can provide flexibility when startup costs are high.
- No need to visit a bank.
- Don't have to prove anything to bank staff.
Why Your Business Needs a Separate Checking Account
Sole proprietors might not think they need a separate business bank account because they are not taxed as a separate entity. However, if you combine your business and personal funds, it can make it harder for the IRS to know if you are actually running a business or not. If you do decide to use a personal bank account for your sole proprietorship, make sure to keep all records of business transactions. Anything your business will want to claim as a tax deduction will need to be recorded. As long as you do this, keeping one bank account shouldn't be a big deal.
LLCs, partnerships, and corporations all need a separate business bank account. The reason for this is that these types of business entities are taxed separately from the owners. When it comes to corporations especially, business and personal finances need to be conducted completely on their own. To avoid being sued or held responsible for corporate liabilities, keep checking accounts for business and personal use separate. Failing to do so could be disastrous.
What Is the Main Purpose of a Checking Account?
There are only a few types of bank accounts that are available to both individuals and businesses—a checking account is one of them. A checking account differs from other accounts, such as savings accounts and IRAs, in that you can readily use the accounts via electronic payments or by writing checks. Almost all banks will issue checks and a debit card upon opening a new checking account. This allows immediate access to your money.
Online banking features are a modern-day convenience that most banks today do offer. This makes conducting banking easy and convenient by letting you pay bills or manage accounts anytime.
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