Why you need a business bank account for your LLC

LLC business bank account at a glance

Item	Details
Legally required?	No federal or state LLC law requires one
Main reason to open one	Keeping business and personal money separate supports your liability protection
Tax ID needed	EIN for most LLCs; some banks accept an SSN for a single-member LLC with no employees
Common documents	Articles of organization, EIN letter, operating agreement or banking resolution, owner ID
Deposit insurance	FDIC coverage up to $250,000 per depositor, per insured bank, per ownership category

As an LLC owner, neither federal law nor state LLC statutes require you to have a separate business bank account. Still, there are several reasons accountants, lawyers, and some banks recommend you do.

This guide covers what those reasons are, why you might need a business bank account for your LLC, the available options, and how to apply for them. It’s part of the maintaining your LLC series.

Can I operate my business with my personal bank account?

Yes, you can operate a sole proprietorship or an LLC using your personal bank account, but it isn’t advisable.

Sole proprietorship

Sole proprietorships aren’t required to have a separate business bank account. If you trade under a DBA name (doing business as), though, most banks need a business account in that name before they’ll accept checks made out to it.

Without one, mixing your business and personal funds could make organizing your finances challenging come tax time.

Limited liability company

There isn’t a law saying an LLC owner must have a separate business bank account, but you may pay for it indirectly if you don’t. Courts can look at commingled funds when deciding whether to hold owners personally liable, and mixed records make tax mistakes more likely.

By default, an LLC is a pass-through entity, and as the owner, you’re responsible for estimating and paying the right amount of tax. If you add your personal finances to the bookkeeping mix, you could have a recipe for disaster.

Why should you get a separate business bank account for your LLC?

Whether you are starting an LLC or already own one, opening a separate business bank account for your brand transactions makes sense.

It’s easier to track your business income and expenses, helps protect you and other LLC members from personal liability, and improves your brand image.

Business vs. personal checking accounts

At first glance, business and personal checking accounts look the same.

You can use both to make deposits and withdrawals, hold and manage your money, draft checks, pay your expenses, and make purchases using a debit card.

However, there are several ways a business account can help your LLC that a personal one cannot.

Helps protect your limited liability

The LLC structure provides you with limited liability protection, which can secure your assets should your business face litigation or liability.

If you commingle your personal and business financial transactions, your protection is at risk.

For example, if you deposit non-business income into your business account or use it for your personal expenses, a court may decide the LLC isn’t really separate from you. That’s called piercing the corporate veil, and it can let creditors claim against your personal assets if your LLC is sued.

A separate business account for your LLC can help prevent that from happening.

Manage your tax season

Individual federal income tax returns are usually due April 15. Multi-member LLCs taxed as partnerships file Form 1065, which is due March 15 for calendar-year businesses.

Before those deadlines, owners of a single-member LLC prepare their financial reports for the previous year and file a Schedule C form with their Form 1040.

By having separate bank accounts, it’s easier to distinguish your profits and losses. That can help lower your tax bill, because your accountant can find every deductible business expense before your return is filed.

Makes bookkeeping easier

A business account also makes bookkeeping easier and tax compliance more manageable, saving you time and reducing your end-of-year accountancy bill.

When you have a separate account, it acts as a ledger that lets you reconcile your bank statements and calculate what you’ve earned, what you’ve spent, and what’s tax-deductible.

Your business account also helps you create a clear audit trail, which is useful if the IRS audits you. It can also show cash flow, which can help you apply for a business loan.

Provides professionalism and credibility

A separate business account looks more professional to vendors and suppliers, as your LLC business name appears on payments.

It’s also more credible with consumers, which can help influence purchasing decisions.

Plus, business accounts can give your customers more payment options, and you can allow an employee to look after daily banking needs on your behalf.

More credit options

When you open a business account, you enter the world of business banking, which often comes with optional lines of credit that could otherwise be unavailable.

These credit options, such as business credit cards, overdrafts, and business loans, can help fund your LLC when it’s most needed.

Can provide customer purchase protection

A business account can also increase sales because consumers can pay using debit cards, credit cards, checks, electronic transfers, and mobile payments.

Card payments come with dispute rights for the buyer, which helps customers make larger purchases with confidence.

Different types of business bank accounts

There are several business bank accounts to choose from, ranging from standard checking accounts to accounts with features like a business debit card, online banking, 24/7 customer support, and cash management services.

Account type	Best for	Watch out for
Business checking	Everyday payments, deposits and debit card use	Monthly fees or minimum balances
Business savings	Reserves and money set aside for estimated taxes	Withdrawal limits and higher minimums
Merchant account	Accepting card and electronic payments	Per-transaction or flat processing fees
Business credit card	Short-term spending and building business credit	Higher interest; usually a personal guarantee

Business savings account

Savings accounts suit businesses with excess capital they’d like to keep and earn interest on. Some banks don’t charge a fee for a savings account if you keep a minimum balance.

Pros

Business savings accounts provide higher interest rates, low to zero fees, and help set aside your quarterly estimated tax payments for the IRS.

Cons

A business savings account isn’t suitable for day-to-day business. Many come with withdrawal restrictions and have a higher minimum balance requirement than a business checking account.

Business checking account

Business checking accounts are for everyday use and transactions, allowing you to pay bills, make purchases, deposits and withdrawals, and use a debit card and business checks.

Pros

A business checking account suits daily business use and keeps a clear line between you and your business, and some offer lines of credit.

Cons

A business checking account takes more paperwork to open than a personal account, and many charge monthly fees unless you keep a minimum balance.

Business merchant account

A merchant account enables your business to accept and process credit and debit card transactions and other electronic payments.

Businesses that take card payments online or in person need either their own merchant account or a payment processor that provides one, along with a regular business bank account for payouts.

Merchant accounts aren’t like traditional business accounts, as you mostly use them for transactions, not storage.

Pros

A merchant account provides your customers with flexible payment options and protection.

Cons

Most electronic transactions come with fees. Some merchant accounts charge a percentage of each transaction or a flat fee, others are a mixture of both.

Business credit card account

Businesses of all sizes can benefit from a business credit card account.

Accounts give you access to a pre-set revolving credit line and can help build a business credit history and improve your borrowing terms.

It’s best to use business credit cards sparingly and as a backup to your other lines of credit.

Pros

You have regular access to extra credit, it’s easier to get than a loan, it works online, and it provides a financial cushion.

Cons

Credit cards usually cost more than a credit line or loan, and most require a personal guarantee, so you can be personally liable for the debt.

How to open a business bank account for an LLC

The documents you’ll need to open a business bank account for your LLC depend on your state and bank. They differ, but most banks ask for the items below.

Item	Details
Tax ID	EIN, or SSN for some single-member LLCs
Formation document	Articles of organization (or certificate of formation)
Ownership and signers	Operating agreement or banking resolution
Owner ID	Government-issued photo ID for each signer and owner the bank must verify
Sometimes requested	DBA registration, business license, certificate of good standing

Social Security number (SSN)

Single-member LLCs that have no employees and don’t owe excise tax aren’t required by the IRS to get an EIN, so some banks let them open an account with the owner’s SSN. Many banks still ask for an EIN.

Employer Identification Number (EIN)

A multi-member LLC, or a single-member LLC with employees or excise tax obligations, must use an EIN to open a business bank account.

You apply for an EIN for free on the IRS website.

Legal business name

As an LLC owner, you register your legal business name when filing your articles of organization.

Your business name is the official name of your LLC and is not to be confused with a DBA (doing business as).

DBA name

When an LLC operates under a DBA, your bank might request a certified copy of your DBA registration before providing you with a business bank account.

Articles of organization

Articles of organization are the document you file with your Secretary of State to create the LLC. Some states call it a certificate of formation.

Operating agreement

Operating agreements outline how an LLC with 2 or more members is run and help show that a single-member LLC is a separate entity. It should also show which member is the legal signee for the business bank account.

Business licenses

Many small businesses need a business license at the federal, state or local level to trade.

The business license you need depends on the industry you’re in and where you’re doing business.

Who can sign on the account

To open a business bank account for an LLC, you must designate a signee in charge of direct payments, signing checks, or withdrawing funds.

It can be one or more members or a manager. The authorization can be in your LLC’s operating agreement or in an LLC banking resolution you give the bank when opening the account. Some banks also ask for a recent certificate of good standing.

Is your LLC’s money insured?

At an FDIC-insured bank, deposits are covered up to $250,000 per depositor, per insured bank, for each account ownership category. An LLC’s accounts are insured separately from the owners’ personal accounts, according to the FDIC.

Next steps

Before reading this post, you may have wondered, “Do I need a separate business bank account for my LLC?”

The law doesn’t require one, but a business bank account for an LLC can protect your liability shield, keep your tax records clean, help run your business more efficiently, and free up your precious time.

FAQ