Starting your own business is a thrilling endeavor. As you continue down this road, there is always the question, “Can I use a personal bank account for your LLC?” It seems like a logical thing to do at the time, but does it ultimately protect your business?
Can You Use a Personal Bank Account for Your LLC?
When forming your LLC, you may think initially, “This isn’t a really big deal, right”? You might think you have a personal bank account you’ve been using for years, so what’s the issue? Well, once you mix your finances, you could run into several “headaches” for your LLC. You want to weigh these issues before you consider doing so.
Why Should You Switch from a Personal to a Business Bank Account?
The most important reason that helps in deciding to transition from a personal bank account to a business one is keeping finances separate. But this is not just about clarity or legality. When you combine your personal bank account and your business account, you diminish the difference between personal liability and business liability. They become the same, hence risking the limited liability protection offered by your LLC.
Importance of a Separate Business Bank Account
Having a business bank account will help you stay organized. You will have a clear understanding of your expenses and cash flow. Also, when it comes time to file, an accurate financial statement can be generated. This tool is also needed during tax time. It means having less to scramble around to find things. Also, it helps avoid numerous mistakes during the filing process.
Risks of Using a Personal Bank Account for LLC
Using a personal bank account for your LLC can land you in some stressful situations, some of which are given below:
- Piercing the Corporate Veil: This important concept refers to the process of a court disregarding the business’ separate entity status. Piercing the corporate veil essentially makes you personally liable for business debts and obligations. This can easily be triggered by mixing personal and business finances.
- Complex Bookkeeping and Tax Reporting: Lowers your chances of maintaining clean and precise records. This combination can result in errors and complications when filing taxes. If the IRS has to investigate further, this can lead to possible fines.
- Lack of Business Professionalism: The fact that clients or suppliers would be paying into your personal account may make your business seem unprofessional, unestablished, or incomplete. This idea could affect your credibility, ultimately impacting your company in the long run.
- Inaccurate Financial Tracking: Personal accounts usually have mixed transactions which are hard to keep track of. Not only does mixing your personal and business accounts lead to poor money management, but also issues with decision-making.
How to Open a Business Bank Account for Your LLC
While opening a business bank account for your LLC is not very complicated, it’s important to do the process right. A step-by-step process includes:
- Selecting the Best Bank: After determining your financial needs, research various banks and select the one whose fees and services fit best your business needs. Along with this online banking solution, customer support, branches, and ATM availability can also help make the final bank selection.
- Documents Preparation: Usually you’ll need LLC formation documents, an EIN from the IRS, and a resolution of who is allowed to open the account on behalf of the company. Depending on the needs of various banks, the operating agreement and personal ID may also be included.
- Visit the Bank: When all required documents are prepared, go to the bank for a corporate account. A business banking representative helps to walk through necessary forms and processes.
- Fund Your Account: When the account is opened, an initial deposit will be required to activate it. This may also differ from bank to bank.
- Set Up Online Banking: Enroll for online banking after setting up your account and deposit funds. Online banking simplifies transaction tracking and easy bill payment solutions, saving valuable time and helping you stay on top of things regardless of distance or place.
- Order Checks and Cards: Lastly, order checks and a debit card linked to your new account. This will help in keeping business transactions separate from personal ones.
By going through the steps, you’ll make sure everything is organized and legally compliant. You can finally have peace of mind knowing that you’ve handled the finances to the full extent, and you can continue focusing on moving your business forward.
Establish Your Company in the US with Workhy and Benefit from Payment Solutions
You decide on many things when managing your LLC, especially its setup. When looking into getting a bank account for your LLC, it is important to keep your finances separate from your personal finances to protect the assets you already own and for a professional look. As always, if you need or think you need help opening a business bank account for your LLC, contact Workhy and ask for their help with your business.
