What is a LLC account?
An LLC account is a business bank account that is strictly for your Limited Liability Company (LLC) and should be kept separate from your personal bank account.3 min read
2. Why You Should Have an LLC Bank Account
What is a LLC account? An LLC account is a business bank account that is strictly for your Limited Liability Company (LLC) and should be kept separate from your personal bank account.
The LLC was intentionally conceived as a business structure to safeguard personal property and assets from liquidation and used as compensation in lawsuits, to pay fewer taxes, and yield other advantages. If you have a company that functions as an LLC, opening a separate bank account in your company's name is an excellent way to keep your personal banking transactions separate from your business transactions. An individual business account also makes business and personal bookkeeping less complicated.
Why You Shouldn't Use Your Personal Bank Account as Your Business Bank Account
When establishing an LLC, you created an independent business entity that will afford you with limited liability protection. Since your LLC is an independent entity from your personal situation, it's required of you to keep the finances of your LLC separate from your own finances. Even though it's enticing to merge your company funds with your personal funds, it isn't a good idea because it puts the limited liability protection at risk.
Notwithstanding the legal stipulation to retain a detached bank account for your LLC, there are also sensible purposes for obtaining a business bank account. The business bank account will assist you in keeping your personal finances unconnected from your business finances, making it simpler to figure out the taxes you owe, both personally and for your LLC. Having a separate business bank account contributes to your credibility with suppliers and vendors as a reputable business owner because you'll show more professionalism if you pay with checks that have your LLC's name on them instead of paying with personal checks.
After you have established your business bank account for your LLC, you'll be able to start a business relationship with that bank because you will be demonstrating that you are a responsible business owner and would be a good candidate for a business loan and further credit needs from your bank in the future. Having an individual business bank account is a necessity for your LLC and will assist you with several sensible prospects of operating your LLC, like bookkeeping for business expenses, paying the bills for your business, and depositing payments from clients.
Even though it's not legally imperative, an individual bank account established for your LLC is a vital part of maintaining the liability protection afforded you by your LLC. When a business has a separate business bank account, it is not difficult to substantiate that you are sustaining an individual legal entity.
A downside of not creating a separate business bank account for your LLC would cause you to combine your personal funds with your business funds, and not establishing your business as a separate legal entity and putting your personal assets into the mix. A court of law could find you personally liable for your LLC's legal obligations and debts and your personal assets would be liquidated and used to pay your debts and legal obligations. Not establishing a separate bank account would nullify one of the reasons the LLC business structure was formed in the first place.
Why You Should Have an LLC Bank Account
There are many excellent reasons why you should establish a separate LLC business bank account from your personal bank account which include:
- Uncomplicated financial bookkeeping because personal finances are kept separate from business finances
- Simplifies the calculation of personal and business taxes and keeps them independent of each other
- Prevents audits
- Easier to keep track of business expenses and deductions
- It shows a level of professionalism and business credibility when you use business checks to pay business expenses instead of personal checks
If you have any further questions about what an LLC account is, if you should have an LLC business bank account, and what will be the consequences if you don't have one, feel free to contact UpCounsel.com. Post your legal need on UpCounsel's marketplace, and there will be a lawyer to assist you in your situation. UpCounsel has the most knowledgeable and experienced lawyers on their staff that are ready to assist you with your legal needs. UpCounsel accepts only the top five percent of lawyers, coming from law schools such as Harvard Law and Yale Law, having an average of 14 years of legal experience which includes working with or on behalf of companies like Menlo Ventures, Airbnb, and Google.