Small business owners open LLC companies to protect their personal assets but most of us do not know if it is essential to open a business bank account when you are a single-member LLC owner. After reading this article, it will become clear if your single member LLC needs a separate business bank account or not.
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It is not technically mandatory to open a separate checking account if you are dealing with a single-member limited liability company. Additionally, there is no tax violation if you don’t open a separate business bank account for your LLC.
However, the reason that it is recommended so often for even single member LLCs to open a business checking account is that using the same account for your LLC and personal finances puts your personal assets at risk in what is called “piercing the corporate veil.” This means that your personal assets can be taken if your LLC gets sued, which defeats one of the main purposes of the LLC. Plus, if you have more than one owner of the LLC, it is highly recommended to create a separate checking account to keep everyone’s legal and financial responsibility separate.
Most owners of single-member LLCs open separate business accounts because of personal preference. As most business owners form LLCs to protect their assets that are not attached to the company, making a separate business checking account can be helpful to stay organized. Most business lawyers recommend that you open a business checking account for an LLC, especially when you are a single-member LLC owner.
Benefits of business checking account for single-member LLC
Operating your company finances using a business bank account can give you many advantages. If you choose not to open a separate bank account, it can cause a lot of headaches in the future. We’ve listed some benefits of having a business checking account for single-member LLC owners. It will become easy for you to choose a business checking account instead of using your personal bank account to manage business finances when you know about all the benefits.
Ease of managing taxes
When you open a business checking account to manage tax-related transactions, it can give you many benefits. When you are using a personal bank account, having to sort and filter out the company transactions can be a headache and you are prone to making mistakes in filing taxes when using a personal account for managing company expenses. By using a business bank account, you can hire an accountant to file your taxes and avoid many types of potential fines by having all your banking transactions in one channel.
Improve liability protection
If you are using a personal bank account for your company transactions, there are more chances that you will lose money in your bank account if you get sued. If someone sues your company, they will try to get maximum compensation which puts your personal assets at risk. With a personal bank account, there is no distinction between your company’s money and your personal money. By having a dedicated business account for your company transactions, it keeps your business assets separate from your personal bank account, which means your LLC will have improved liability protection.
How to open a business checking account for an LLC
You have a few options when it comes to opening a business checking account for your LLC. The first option is to go to a traditional bank with all the LLC members who need access and bring paperwork such as articles of incorporation, shareholder documentation, etc. and this typically needs to be done in person. The alternative that is becoming more popular nowadays is to use a modern online business checking account like Hatch’s Business Checking Account. These kinds of products are more tailored to our online world and provide certain benefits you wouldn’t expect from a traditional bank such as cashback rewards on debit purchases.
By looking at all the benefits of business bank accounts for LLCs, we can conclude that it is ideal to open a business checking account if you are a single-member LLC owner. Although it isn’t mandatory by legal standards, most business owners open a business bank account because of its many benefits.