LLC Bank Account: Everything You Need to Know
An LLC bank account is important for proving that you and your business are separate entities.5 min read
2. What You'll Need to Open a Business Bank Account
3. Forming an LLC
Updated June 30, 2020:
An LLC bank account is a separate bank account for your limited liability company. It is important to have a separate account for your business so that you can prove that you and your business are separate financial entities in the event of a lawsuit or large liability. Anyone who forms an LLC should get a business bank account to help maintain liability protection for the company's members.
One of the pros of forming an LLC (limited liability company) is having the protection that this business structure offers against creditors. Your LLC members aren't personally responsible for the company's liabilities and debts. Having an LLC bank account supports the separation of the business from its members. This is important in the event that someone sues the LLC.
If your LLC is sued and you can't show the separation between personal and business finances and expenses, then the LLC members could be responsible for the company's liabilities and debts. Having a bank account just for your LLC shows that members' finances aren't combined with the business finances. This adds an important layer of protection for the LLC's members.
In addition to providing separation between your personal and company finances, having distinct bank accounts makes it easier to calculate your taxes. It also lowers your tax bill if you have an accountant since he or she won't have to distinguish between your business and personal finances.
Having an official bank account for your business also gives you additional credibility, which will influence the decisions of suppliers, vendors, and customers.
If you already have a business bank account but are transitioning to an LLC from another entity, you should also open a new account for the new LLC.
How to Set Up an LLC Bank Account
Decide which type of bank account or accounts your LLC needs to conduct its business. This account will be used to collect funds, pay customers, fund business expenses, and complete other financial transactions. Select an account type based on what best serves your LLC's banking needs by considering the following:
- Overdraft protection
- Minimum balance requirements
- Other factors you find important for your LLC
The types of accounts you can choose for your business vary from a basic checking account to those with additional features such as a cash management service and 24/7 customer support. You may also want to consider an account that includes a debit card since this will make it easier to pay expenses for your business.
Consult with a banker to find out which documents and verifications you need to provide to open an LLC account. The bank will have to verify the following information before it opens an LLC account:
- The LLC name
- The legitimacy of the LLC, including proper licensing information
- LLC tax ID number (TIN)
- Names of authorized signers
Collect all of the required documents that the bank requests. Depending on which state your LLC is in, the document names may be slightly different. Most banks ask for documents such as the following:
- Articles of Organization
- Business license
- Proof of EIN
- LLC operating agreement
- Fictitious name certificate
- Certificate of formation
- Certificate of assumed name
A signer on the LLC account is usually a member, members, or a hired manager. Before members agree to open an LLC account, they should assign rights to parties detailing who can act as authorized signers or withdraw funds. This is important if your company's operating agreement doesn't spell out who these parties are.
Anyone who's appointed as a signer should bring all required documents when they go to open the account, including their personal identification (example: state ID or driver's license).
You may be able to open a business account online instead of visiting the bank in person. However, this option is often not available for companies involved in telemarketing, gambling, cashing checks, completing wire transfers, exchanging currency, or dealing precious metals.
What You'll Need to Open a Business Bank Account
The documents you need to open a bank account depend on the type of business organization you have. For example, requirements for an LLC differ from those for a sole proprietorship. Typical documents needed for different business types are outlined below.
- Your social security number (SSN)
- Federal taxpayer identification number (TIN)
Additional documentation you may need includes a government-issued license or a license or certificate showing your business name (if you operate a business under a name other than your legal one).
- The partnership's TIN
- Copy of the partnership agreement (including the partner names and the business name)
- Business name certificate (including partner names and the business name)
Limited liability company:
- Company TIN
- Copy of the company's Articles of Organization (or equivalent document, depending on your state)
- Document showing authorized signers (if not clearly stated in the Articles of Organization)
- A copy of the Articles of Incorporation (or equivalent document, depending on your state)
- Corporate document spelling out who are authorized signers (if the Articles doesn't clearly state who the authorized parties are)
Make sure you provide all necessary documents and paperwork when you go to open an LLC bank account. The bank will check that you're able to legally prove the following:
- You have authorization to use the business name.
- The general nature of the business is as described.
- Your business is registered with the proper government agency.
- You're authorized to set up the account.
Having an LLC account is a smart way to protect a company's members from personal liability in the event that the business is sued by maintaining a clear distinction between personal and business finances.
Forming an LLC
An LLC can have one or more owners, who can be individuals, other LLCs, corporations, or foreign businesses. This type of entity also must meet certain structural requirements.
Choose an LLC name that will distinguish your business from others in your region or industry. This name must include either the words "Limited Liability Company" or the abbreviation LLC. You cannot use certain words, which vary by state but usually include incorporated, trust, insurance, or bank.
Depending on state law, you may need to appoint a registered agent. This person agrees to receive legal paperwork on behalf of your LLC and must live in the state of origination. The registered agent can be an LLC member or employee but can also be another individual or an outside agency.
Many states do not require an LLC operating agreement, but it is important to have one to prevent later disputes. The operating agreement details the management structure of the business, how excess capital will be invested, how profits will be divided, and procedures to follow if a member leaves the business or passes away. Creditors, banks, and investors may require an operating agreement from your business.
The articles of organization form is filed with the state. Some states also require an application. Depending on your area and industry, you may need certain registrations, licenses, permits, and other documents to operate.
An LLC is a pass-through organization, which means profits and losses are reported on each member's individual tax return. Members must file Form 1065 along with their other income tax documents. If another company did business with your LLC, they will issue a Form 1099 if they paid your business more than $600 for its services.
If you need more time to submit your taxes, you can submit an extension form to receive five extra months. You can use Form 8832 to elect corporate tax treatment for your LLC.
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