No matter what type of business you operate, it is likely you will need to open a bank account to keep business income separate from personal or other types of income. A bank account in the name of the business gives transactions a certain legitimacy. Business bank accounts have different features, however, that depend upon the way the business is legally formed. Corporate bank accounts have the most formalized requirements, while other types of business bank accounts have more leeway.
Authority
A business bank account can be opened for any type of business entity, including a corporation, limited liability company, partnership and sole proprietorship. The main difference between a corporate bank account and bank accounts for the other business entities is that opening a corporate bank account can only happen by a decision of the board of directors, evidenced by a corporate resolution. Regular business accounts for other types of entities can be authorized by any owner of record without an official vote. The bank will simply ask the business owner to produce state registration paperwork in the case of an LLC or the Employer Identification Number assignment letter from the Internal Revenue Service in the case of a sole proprietorship or partnership. As long as the person opening the account matches a person of authority on any of the paperwork, the bank will open the account.
Independence
A corporation is an independent legal entity under the law. It is authorized to do most of the things that an individual can do, including opening bank accounts. Although it is independent, a corporation must always designate a person to act on its behalf, and that person might not be the majority shareholder. For example, corporate bank accounts are typically opened by the treasurer of the board of directors. The treasurer brings the corporate resolution that authorizes him to open the account to the bank to complete the task. A corporate bank account also typically has a list of authorized signers on the account, and these people may or may not be shareholders. Conversely, a regular business account is often closely tied to the business owners. In the case of a sole proprietorship, for example, the business bank account is actually a personal bank account using a business name, because a sole proprietorship is not an independent legal entity.
Liability
A regular business account may or may not be considered a personal asset of the business owners, while a corporate bank account is never considered a personal asset of the shareholders. A business account that is considered a personal asset of an owner can be attached by the owner’s personal creditors. One of the main features of a corporation is limited liability, or the separation of business assets and liabilities from the assets and liabilities of owners. Thus, a corporate bank account offers a level of protection to business assets that a regular business account may not offer, depending upon the type of business that opened the account. For example, business bank accounts of sole proprietors and partnerships can be attached by personal creditors.
Credit Rating
As an independent entity, a corporation’s bank account is opened under the corporation’s EIN. The conduct of the account accrues to the corporation’s credit rating, not the credit rating of individual owners. A regular business bank account can be opened under the business owner’s Social Security number or a separate business EIN. A business account that is opened under an owner’s Social Security number will become part of his personal credit history. Even if certain types of businesses, such as sole proprietorships and partnerships, use an EIN to open a regular business account, the conduct of the account can still be associated with the owners’ personal credit because the business entity is not independent.
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