Does My Company Need a Bank Account?

By: Sean Valle

When working with startups, we often hear the question “does my company really need a bank account?” The short answer is yes. Here, we outline some of the reasons that maintaining a separate business bank account specifically for your company’s finances is essential from a legal and accounting perspective.

The value of creating a company at all is that it shields your personal assets from certain liabilities the company might incur. This is sometimes referred to as a “corporate veil.” If a third party ever sues your company (say, a bank is trying to collect on the company’s credit card or someone is hurt using your company’s products or services), and that third party wins the lawsuit, the company might owe that third party money. The third party might then use a court to collect that money from your company in myriad ways, including forcing you to (1) transfer existing cash to the third party or (2) sell the company’s assets in order to generate transferable cash. In the unfortunate circumstance that your company cannot possibly generate the amount of money you owe to the third party, your company could be forced to file for bankruptcy and dissolve.

Fortunately, as an owner of the company, the “corporate veil” prevents the third party from collecting any money from you personally. The third party can only go after money or other assets owned by the company itself. In most instances, your personal assets are protected by the “corporate veil.” So, even if your company is forced to file for bankruptcy and dissolve, whatever you personally own will be your own and not subject to the company’s debts.

Occasionally, courts will “pierce the corporate veil.” This can effectively remove the protections of your personal assets outlined above. Your personal assets, such as your house, your car, and your savings, become subject to possible collections for liabilities incurred by your company.

A common reason to “pierce the corporate veil” is that companies operate as if they are not independent entities from the people who own them. If you use your personal checking account to process both your personal money and your company’s money, if you make personal and company payments from a single bank account, and you regularly use money received from company activities to pay for your personal bills or interests, it is difficult to argue that you and your company are really separate entities. If you commingle funds in this way, courts see no value in giving you the special protections the “corporate veil” provides. If you didn’t place a veil between yourself and your company, why should a third party be prevented from collecting payments from any of your joint, commingled assets?

Business owners are fortunately provided with a “corporate veil” to protect their personal assets from certain business risks unless there is a good reason to take that protection away. In order to ensure courts let you keep this protection, it is especially important that you (1) create and maintain a separate bank account for your company, (2) use your company’s bank account solely for business purposes, and (3) use your personal bank account solely for personal purposes. Only transfer money between your company and personal bank accounts if you have followed the appropriate corporate formalities for doing so. If you’re not sure what to do, ask your lawyer or accountant for help. It is always better to ask for help before mistakes occur! By doing so, you can rest easy at night knowing your personal assets are safe.

So, how do I open a company bank account?

Opening a company bank account is relatively easy, and, with modern online banking, there are many options. In order to open a business bank account, you will need to provide your bank (1) a copy of your filed Articles of Incorporation (for corporations) or Articles of Organization (for limited liability companies) and (2) your IRS Employer Identification Number (EIN).

Be sure to check for any initial or ongoing minimum deposit requirements and monthly fees or charges. And ask your bank about any useful accounting features for your account, such as ways to automatically categorize deposits, payments, or expenses online.

Based in the Research Triangle region of North Carolina, Fourscore Business Law serves entrepreneurs and businesses in Raleigh, Durham, Chapel Hill, Wilmington, Charlotte and throughout the Southeast. We also represent venture capital funds and other investors who invest in companies located in New York, Silicon Valley and everywhere between. The idea of delivering maximum impact in a simple and succinct manner is what we’re calling the Fourscore Principle. And that is what Fourscore Business Law is based on.  Our clients operate in a broad range of industries including tech, IoT, consumer products, B2B services and more. Questions? Shoot us an email or give us a call at (919) 307-5356. Your first call is on us.