What started as a small venture is now an honest-to-goodness business. With the increase in sales and hiring of employees, a business bank account becomes a necessity. How do you set up a bank account for your business?
While it is tempting to continue using your personal account or even the current account for your new business, a dedicated business account is a must. Payroll, sales, and business expenses need to be processed through a dedicated account, according to smallbusiness.yahoo.com.
What type of business?
Before you open a bank account, determine what type of business you are running. Sole proprietorship? Partnership? Corporation?
A sole proprietor is a business owner who owns and operates a business. According to Wikipedia, there is no distinction between the sole proprietor and his business. In other words, all monies come to the owner; the owner is responsible for every aspect or the business, and basically, “the buck stops with the owner.”
While it is not illegal to keep track of all business transactions through a personal current account, it can be confusing. Even if you are a sole proprietor, keep track of all business transactions in a business account; you will keep track of all transactions in one place. Having all transactions going through one account will be helpful when you prepare your taxes.
Do you have a business partner? If you have a partnership with one or more persons, a joint business account for the business will allow all partners to withdraw, write cheques, and make deposits to the account. Partnerships are generally not incorporated.
Or have you established your business as a Limited Liability Company? One or more of the following requirements must be fulfilled in order to qualify as an LLC: (1) All members are within the field of membership, (2) The LLC is located within a designated community boundary, or (3) The LLC is named in the field of membership. An LLC offers liability protection similar to that of a corporation, but is taxed more like a partnership.
Chances are good that if you have incorporated your business, you will have been advised to set up a separate business account. Wikipedia defines a corporation as a “legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members.”
Once you have determined what business you are running, decide what type of bank account you need.
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