It is essential to separate corporate and personal finances for smooth operations. Opening a business banking account helps you do this. This article will explain what corporate accounts are, their benefits, and who can open them.
What is a business bank account?
They are bank accounts that you open solely for corporate purposes. You open it in your company’s name, and it’s used to handle only business transactions.
Various types of corporate accounts include
- Merchant: For accepting and processing electronic payments.
- Savings: For saving your profits and earning a healthy interest.
- Checking: For payroll, rent, vendor payments, and other recurring expenses.
Can anyone open a business account?
You can’t open one unless you first incorporate a company. The banking institution will demand a certificate of incorporation and tax identification number, among other documents, before giving you one.
People who should open corporate accounts include
- Sole traders
People who run sole proprietorships can open a dedicated business banking account. It’s not a legal requirement for this type of operation but is very helpful. For instance, it’ll make it easy to keep track of company expenses that the owner can deduct from their tax liabilities.
- Limited companies
Limited companies are structured such that their owners aren’t personally liable for corporate debts. It’s mandatory for this type of company to open a separate account to avoid comingling personal funds.
If you mix personal and corporate funds in a limited company, you’ll likely lose your limited liability protection in the case of bankruptcy.
Why do I need to open a business bank account?
- It looks professional
Having a separate account makes your company look more professional in the eyes of customers and vendors. Customers will be more trusting when transacting directly with registered business accounts rather than personal ones. Similarly, vendors find receiving payments from corporate accounts more professional.
- Limited liability
If you run a limited company, you need a separate account to enjoy limited liability protection. If you conduct business with your personal accounts, you’ll likely lose that protection and become personally liable for company debts.
- Credit lines
Financial institutions require a corporate account if you want to receive a loan to expand the business. No bank will issue a company loan for a personal account.
- Financial reporting
This type of account makes it easy to keep track of business transactions and expenses. Compiling your quarterly and annual financial reports will be easy when you have a separate company account. You could even use automated bookkeeping software that automatically logs every transaction connected to your accounts.
- Tax Preparation
A corporate account makes it easy to prepare accurate tax documents and file with the appropriate authorities. It’ll be easy to track revenue, profits, losses, and deductible expenses to report on your tax forms.
- Banking relationship
It sets the groundwork for building a relationship with your banking partner. This relationship can be very helpful as you scale your business.
How much do business accounts cost?
The different costs involved include
- Initial deposit: Some banks demand a minimum initial deposit. The amount varies, but it could be anything above $1,000.
- Transaction fees: You’ll pay fees for various types of transactions, including transfers, withdrawals, interchanges, etc.
- Monthly fees: Some banks charge a recurring monthly fee to maintain corporate accounts.
We have explained what corporate bank accounts are, who should open them, and their main benefits. There are many options to choose from to open corporate accounts. We recommend Silverbird, an online business banking account that supports dozens of foreign currencies and facilitates cross-border trade.