Corporate bank accounts allow business owners to separate their business and personal finances, simplify accounting, and make applying for loans and credit cards easier.
Here’s what you need to know about opening your first corporate bank account for your business.
Understanding Corporate Bank Accounts
Corporate bank accounts, also called business checking accounts, are bank accounts owned by a business. They allow a business to pay bills and payroll and hold short-term cash savings. Some business investment accounts allow the business to invest in assets like stocks and bonds.
Most business owners use corporate bank accounts to separate their personal and business finances. This not only helps with filing quarterly tax estimates, but it can also simplify legal issues if a client or customer sues your company.
In general, business owners should create a corporate bank account as early in the life of their business. Creating a separate business bank account allows business owners to outsource bookkeeping and other accounting tasks that can take a lot of time, but don’t add a ton of value to the business.
Requirements For Opening A Corporate Bank Account
Opening a corporate bank account isn’t too difficult, but you need to have a few things in order before you can open the account. The first thing you need is an Employer ID Number (EIN). Your company’s EIN is used for myriad activities including filing taxes, issuing W-2 forms for employees or 1099-NEC forms for contractors, and opening a solo 401(k) plan. On top of those activities, an EIN is almost always required to open a corporate bank account.
In addition to an EIN, you may need some legal documentation that shows your business is a legal entity. Corporations (including S-Corps and C-Corps) require Articles of Incorporation to become legal entities. If your business is an LLC, you’ll need Articles of Organization instead. Your bank account provider may require a copy of the articles to allow you to open the account. Sole proprietorships don’t require any specific legal papers, but establishing a separate legal entity can save you a lot of hassles down the road.
In addition to your company’s legal documents, you’ll need personal documents (such as a personal ID card, and financial statements) to open the bank account for your corporation. Once you have everything in order, you can open your company’s new bank account.
Steps To Open A Corporate Bank Account
Opening a business bank account is relatively straightforward and can be done online. These are the steps you need to follow to open up your first corporate account.
- Compare fees and interest rates. Before you open a bank account, be sure to compare monthly banking fees and interest rates. While there are dozens of banks that offer free checking and savings for personal accounts, many business bank accounts have fees ranging from $10 per month to $30 or more. That said, some banks that offer free corporate banking accounts.
- Prepare your documentation. Nothing is more frustrating than trying to knock out some paperwork only to be stymied by a lack of documentation. Make sure to gather your EIN, your articles of incorporation, and track down your personal ID. With these on hand, you can easily open a corporate bank account from the comfort of your own home.
- Complete an online application. Some banks and credit unions require you to visit a branch to open a corporate account, but you can also open business bank accounts online. You'll need to fill out an online application, and upload any documentation the bank requires. You're unlikely to get “instant approval” since your documentation will need to be reviewed. But within a day or two, you should have a bank account open.
- Transfer money to your new account. Once you’re approved, you can transfer money to your new corporate bank account. If you have retained savings, transfer them to the new account. If not, put a small amount of seed money into the account so you can avoid fees, and buy the few things you’ll need to start your business.
Choosing The Right Bank For Your Corporate Account
Every business is different, so it’s important for you to do a bit of research before deciding on a bank account. These are a few different factors to consider when deciding on an account for your corporation.
- Monthly fees. Corporate bank accounts tend to have high fees including monthly fees for checking accounts. Make sure to compare fees to find the best corporate account for you.
- Look At Transaction Fees. Transaction fees are fees charged on each transaction over the account maximum in a given month. Each transaction can cost $1 or more. These fees can wrack up quickly and are gotchas for business owners who operate businesses with many transactions. If you collect money frequently and pay many different vendors, make sure to look for unlimited transaction fees.
- App features. Most corporate banks have mobile apps, but not every app is created equally. Make sure that the app allows you to digitally deposit checks, and authorize payments from the app. Without these features, you won’t be able to bank on the go.
- Branch or ATM Access. If you accept cash payments, you’ll want easy access to a bank branch or an ATM. That way you can deposit your cash into your account so you can make payroll and pay your other expenses.
- Ability to add authorized signers. An authorized signer is someone who can legally use the corporate bank account to pay bills, set up payroll, or authorize money to leave the account. You may want the ability to outsource some of the daily financials to an accountant. To do that, you'll need to add an authorized signer to your account. If a corporate account can’t support multiple authorized signers, it’s not an account that can grow with your business.
- Stability. I’ve been burned a few times by start-up banks that fail to launch. I had to redirect my automatic payments, and use an alternative account while I opened a new account. Even worse, I had a significant sum of money locked up for over a month as I waited for the bank to issue me a paper check when the electronic funds transfer failed. Based on my experience, I recommend that you look for a corporate bank account from a reputable bank.
- Handling foreign exchange. Some business owners need to exchange foreign currency. If you’re doing business overseas, make sure you understand how foreign exchange transactions work in your business bank account. Otherwise, you could see high fees or slow payments from your bank.
Common Mistakes To Avoid When Opening A Corporate Bank Account
There are a few common mistakes business owners make when they first open their corporate account. A classic mistake is walking into your local bank branch and asking to sign up for an account without shopping around. The local bank may have high fees or poor service for small business owners. At a minimum, you’ll want to read reviews of the bank before committing.
Another mistake is trying to open a bank account before your legal structure is finalized. You need an EIN, articles of incorporation, and a personal ID to open a corporate bank account. Take the steps to get your business set up before you open the account.
And many business owners don't consider their business structure before choosing a bank account. Not everyone needs to worry about transaction fees or foreign exchange rates, but some do. Make sure you consider your business, who you’ll pay, and who will pay you before you commit to one account or another.
Overall, opening a business bank account isn’t hard, and it’s tremendously valuable to keep your business and personal finances separate. With a bit of research, you can find the right account for your business.
When should I open a corporate checking account?
Ideally, you’ll open a business bank account before you start accepting money for your business. But realistically, most people start earning a little extra cash before they decide they need to separate their business and personal finances.
In most cases, you should open a business bank account when your business starts to have recurring expenses. If your business needs software, open a business banking account. If you have to pay contractors, open a business bank account.
What is a difference between a corporate and business bank account?
No, they are essentially the same thing.
What are the easiest places to open a corporate checking account?
Generally, it's easiest to open a corporate bank account with an online bank. Here are our top 10 picks.
Hannah is a wife, mom, and described personal finance geek. She excels with spreadsheets (and puns)! She regularly explores in-depth financial topics and enjoys looking at the latest tools and trends with money.