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No matter the size of your corporation, effective financial management is crucial for success. A business bank account lets you centralize your company’s funds and access features that can support your growth. Discover how to open one in six simple steps.
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How to Open a Bank Account in a Corporate Name in 6 Steps
Finding the ideal bank account for your corporation can be a daunting task. This guide will help you open a business bank account in short order.
Step 1: Choose a Bank Account Type
Bank accounts come in all shapes and sizes. Before opening an account for your corporation, you’ll want to weigh the pros and cons of each type. You may end up opening just one account, but many times, you’ll select a few that complement each other.
Here are the five most commonly used business bank account types and the benefits of each:
Business Checking Account
You’d be hard-pressed to find a business operating without a checking account. This account is the backbone of your financial operations and allows you to move money easily. A business checking account is perfect for transferring funds, paying vendors, and withdrawing cash as needed.
Most of your corporate finances will reside here, constantly ebbing and flowing as demands arise. Monitoring upcoming expenses is crucial, lest you run the risk of insufficient funds.
These accounts usually have transaction limits; exceeding the allotted amount leads to fees. The same holds true for cash deposits, making it paramount to check these restrictions before signing up.
Bluevine offers an impressive APY on its checking account, providing up to 2.0% return on balances up to $250,000. To qualify, account holders must spend $500 monthly with their debit card or receive $2,500 in monthly customer payments. Bluevine has two premium tiers, Bluevine Plus and Bluevine Premier, where users can earn up to 4.25% APY.
Business Savings Account
A business savings account can be a great place to store money when setting aside money to pay shareholders or work towards an upcoming large purchase. Finances in a business savings account almost always accrue interest, although rates vary significantly from one bank to another.
The FDIC lists the national average for interest rates on savings accounts at 0.35%. If you shop around enough, you should be able to find something higher.
You won’t want to touch this money if you don’t have to, so you can maximize income from building interest. It may not be an earth-shattering number, but any amount can add up over time.
The biggest downside of a business savings account comes as limited withdrawals. You can’t pull out money over six times a month, potentially leaving you with inaccessible funds if you don’t plan accordingly. Writing checks or using a debit card to take funds from a business savings account is impossible.
Business Money Market Account
Business money market accounts act like beefed-up savings accounts. They often have higher interest rates and the flexibility of writing checks or using your debit card to withdraw funds straight from the account.
This extra flexibility comes at a cost, sometimes in the literal sense. Business money market accounts tend to have higher initial deposit or monthly balance requirements to adhere to. Some may have unavoidable fees or still place restrictions on withdrawals.
Business Certificate of Deposit (CD) Account
Business Certificate of Deposit accounts offer a whole new take on growing funds. You’ll often find the highest interest rates here, but they have a significant catch.
Using a CD account, you agree to lock away money for a set amount of time, referred to as a term. Depending on your chosen CD, this term can be months or even years.
Your interest rate plays into the amount of money you’re willing to stash away and the length of your term. It’s imperative to ensure you won’t need these funds for any reason until your term ends.
Taking money out of a CD before the end of a term comes with a costly penalty. In most scenarios, terminating your CD early will leave you in a worse position than you were going into the deal.
Merchant Account
Merchant accounts exist to collect credit and debit card payments either in person or online. With a merchant account, these forms of payment will be available to your business.
When a customer pays you with plastic, those funds land in your merchant account before trickling down elsewhere. After a set number of days, the money will automatically move to another account of your choosing.
The service or bank you’re using to set up a merchant account likely has hardware and software for accepting credit or debit card payments. You may face costs for using this equipment, and often small transaction fees are associated with each customer purchase.
Opening a merchant account usually involves a multi-year contract and specific terms. However, services like Square offer a basic plan for free.
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Step 2: Find the Best Bank
Once you’ve whittled down which bank accounts your corporation needs, you’ll want to select the best bank. Not all banks offer every account type, so finding one that does is a priority one.
Keep the following factors in mind when selecting the ideal bank for your corporation:
Fees
Banks are still businesses that need to keep staff employed and the lights on. They have to make money somehow, which may mean monthly fees or charges for using certain services.
A few online banks, like Axos and Lili, offer free business banking accounts without monthly fees. That said, finding institutions with recurring maintenance costs is more common. The best options include waiving these charges through transactions or balance minimums.
Fees can also appear with transactions or cash deposits. Banks typically allow a set number for free, but nickel and dime you after passing that limit. You’re usually okay using in-network ATMs for withdrawals, but out-of-network machines almost always come with a charge.
You can access some business services for free, but read the fine print. There may be charges lurking in the shadows you’re not immediately made aware of.
Required Minimums
Depending on the bank, an initial deposit may be required to open an account. Banks want to make sure you have some skin in the game, so you’ll have to meet this amount before being able to do anything else. Once your account is up and running, a bank may impose a minimum balance to avoid the maintenance fees mentioned earlier.
Bank accounts with higher initial deposits and monthly balance requirements tend to have better perks but don’t wander into a trap. It’s better to take a conservative approach with your corporation so you don’t end up biting off more than you can chew.
Your balance may also affect the interest rate you’ll earn with your checking, savings, or money market account. Additional finances can lead to higher interest rates and more money back to your corporation each month.
Interest Rates
Your corporation’s extra funds can serve well in a savings, money market, or interest-bearing checking account. These accounts generate interest based on the amount contained within.
Most corporations use savings and money market funds for unexpected expenses or large purchases. Growing even a few tenths of a percent each month can make a huge difference in the long run.
Online Banking
Today’s banks understand the importance of an online presence in our fast-paced world. Some institutions don’t even have physical locations, opting to do business solely over the computer.
The best banks let you perform all your business functions from anywhere with an internet connection. Doing so eliminates the need to drive to a branch and wait in a queue.
Mobile banking apps allow you to transfer funds, monitor account balances, and set alerts to prepare you for upcoming expenses. They’ll even let you deposit checks from your phone or point you to the nearest ATM.
Business Services
Your chosen bank should have additional business services to help your corporation manage funds. Features may include fraud protection, accounting software, or payroll solutions for your staff. Institutions like Bank of America have a reward structure just for doing business.
Chase is known for its business services, and U.S. Bank has several lending opportunities for any corporation needing extra cash. Novo works well with e-commerce giants such as Shopify and Etsy to facilitate sales.
Step 3: Obtain an EIN
Almost all banks will want to see your Employer Identification Number (EIN) when you go to open an account. Every corporation needs an EIN for tax purposes, whether you have employees or not.
If you don’t have an EIN, jump over to the IRS’s website and apply for one there. It’s free, and you’ll receive your nine-digit number immediately upon completing the form.
A business formation service may complete the EIN application process when setting up your corporation. In this case, locate the number assigned to you when applying for a bank account.
Step 4: Create a Corporate Resolution
All business owners need to meet and draft a corporate resolution. This holds true even if you’re currently a company of one.
Your corporate resolution answers many of the tough questions your company may face during its tenure. One decision that should be specific is opening a corporate bank account.
In the document, you’ll spell out the purpose of your bank account and who can access it. It should also be clear how each business owner voted, and each individual should sign the form.
Only some banks will ask to see your corporate resolution, but you should still have one on hand. Having everything documented can protect your corporation from liability down the road.
Step 5: Gather Your Paperwork
Once you’ve got the perfect bank in mind and paperwork drafted, you’ll want to gather up your documents. In addition to your EIN and corporate resolution, the bank may request the following information:
Name and Address: You’ll need to provide your corporation’s name and address.
Personal Identification: Banks will look for one to two pieces of identification proving you’re someone who can act on behalf of the corporation. One must be a photo ID, such as a driver’s license or passport. The other can be a voter registration card, credit card, or bill.
Articles of Incorporation: Your Articles of Incorporation define the purpose of your corporation and its duration. The document also captures the name of your registered agent, owner information, and information about the number and type of shares your corporation can issue.
Certificate of Assumed Name: If you operate your business under an assumed name, you’ll need to show legal proof you can do so. This certificate has different names depending on the state.
Business License: Once you’re an officially registered business, the state administers your business license. It shows the bank that you’re a legitimate entity and the state you can operate from.
Corporate Bylaws: Corporate bylaws are a legally binding set of rules your leadership must follow. It spells out specific details on each leadership position and information about shareholders.
Step 6: Sign Up
With your paperwork in hand and a bank in mind, you’ll have everything you need to open a bank account. If the bank you chose has a branch nearby, you can set up everything in person.
A banker will review your paperwork to ensure everything’s on the level. You should be fine with the documents listed above, but researching in advance can save you the headache of collecting something you forgot.
Some banks can immediately bring your account online, while others can take a few days to process your documentation. You may also be subject to a credit check before the bank opens your account.
Signing up for a business bank account online may also be possible. The process varies from bank to bank. Some institutions may not allow this method.
Lili is an online FinTech company that takes mere minutes to open an account. Others, like Chase Bank, require more paperwork and longer review times.
Should your bank require an initial deposit, you must add funds right after signing on the dotted line.
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Benefits of a Corporate Business Bank Account
Corporations must have an account dedicated to business purchases. That said, plenty of other great reasons exist for having a business bank account. Here are some of the best benefits for you and your corporation.
Personal Fund Protection
Corporations offer liability protection for a business owner’s funds. In the event of a lawsuit or business debt, no one can come after your private assets.
Without a clear distinction between business and personal funds, liability protection can go right out the window. Known as “piercing the corporate veil,” the government or debtors can also come after your assets.
Accept Credit Cards
You’ll need a merchant account to accept credit card purchases in a physical store and online. Even if you use point-of-sale tools from a service, you’ll still need a business bank account to attach them to.
Allow Others to Access Funds
Setting up a corporate bank account allows you to access funds where you see fit. You can pick employees to purchase on your behalf or dole out credit cards to cover travel expenses.
Avoid Tax Problems
When tax time rolls around, having a business bank account significantly simplifies handling payments to the IRS. If you track all your credits and debits in one account, it will make calculating amounts that much easier. The process also helps with write-offs.
Miscalculations or incomplete tax estimates can lead to audits that consume time and money. Any ambiguity about personal and business funds can land you in hot water.
Be Professional
Making payments from a business bank account looks way better than sending a check from a personal one. Aligning your business and financial goals speaks volumes for the professional nature of your corporation.
Improved Organization
All your business finances are in one place, which makes it easy to follow expenses and income. You can locate areas where spending is high and ensure revenues are on point all at a glance. As you partner with other businesses, they may ask to see your financial statements before working with you.
Build Credibility
A business bank account lets your corporation start to build its credit. Keeping in good standing with the bank and other businesses can lead to long-lasting relationships. Down the line, you can use this credit to request business loans or favors from another company.
Who Can Open a Corporate Account?
The person applying for a corporate account must have an ownership interest in the company. Banks typically require this individual to have at least a 25% stake in the business. Assuming that’s you, you’ll also need the blessing of your entire board of directors.
Your corporate resolution should clearly state that you have permission to open a corporate bank account. Banks may require you to be a US citizen and run a credit check on your finances.
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How to Open a Bank Account in a Corporate Name Frequently Asked Questions (FAQs)
Have additional questions about how to open a bank account in a corporate name? This FAQ may have the answers you’re looking for.
Bottom Line on How to Open a Bank Account in a Corporate Name
Opening a bank account under a corporate name is essential when forming a corporation. It involves selecting the right account type and evaluating the features that best suit your needs. Once you’ve researched, simply gather the required documents and sign up in person or online.
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Best Business Bank Accounts by State
Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.
Noah is an American copywriter on a mission to help clarify the nuances of the business world through unique insights stemming from backgrounds in both engineering and the medical field. When not working, you’ll likely find him running or traveling.
