ESTABLISHING A BUSINESS BANKING RELATIONSHIP
By: Allen T. May, C.E.O. of Westwood Associates, LLC
Now that you've taken your business venture to the next level, its time to handle some much needed tasks to ensure your new LLC is in fact a separate entity from you personally. I cannot stress enough just how vital this task is. Yes, its more for you to keep up with and yes, its more for you to manage, but its part of doing business. This is an area of your new business venture that should not be overlooked.
You need to establish a business checking account. One of the most important reasons for opening a separate bank account for your business is to help ensure you have limited liability for your newly formed LLC. Your LLC by default is considered a legally separate entity from you. The legal separation goes hand in hand with the protection from personal liability that the LLC provides. You could merely create an LLC on paper by filing articles of organization with the State of Texas and leave it at that. However, that likely won't be enough to definitively prove you and your LLC are separate and, by extension, ensure liability protection in case of a lawsuit filed against your business.
On the contrary, Texas courts have consistently held that an LLC must take additional steps to demonstrate the distinction between the company and you, its owner. One of the most important steps is separating an LLC's money from an owner's money. This is easily accomplished by setting up business banking accounts. As a rule, that means setting up a separate bank account for the business and handling it accordingly. I recommend to all of my clients to set up a business bank account straight away to ensure this process is executed from the beginning.
There are also other reasons why it makes sense to have at least one business checking account. However, I recommend to my clients that they set up the following accounts with the financial institution you choose:
1.) business checking account
2.) business savings account
3.) business money market account
4.) business certificate of deposit account
There are many banks to choose from and while you may have your preferences I highly recommend that which ever bank you eventually go with, make sure that you have selected one with the absolute LOWEST monthly fees. I prefer "NO FEES" and they do exist. You just have to do some research on the matter. From time to time, banks will have specials listed on there website so look for those. When you talk with a banker, make sure that you leave your ego at home. Stress to the banker that you are a SMALL business and want a NO FRILLS checking account. You should be able to find something with no monthly fees. Credit unions would love your business banking relationship and from my experience, offer free monthly business checking accounts if you maintain a minimum balance with them. The bigger banks wont negotiate with you on this matter so look for smaller banks to do business with if this is a concern for you.
Financial institutions like to have a working relationship with its customers. This is why I recommend that you also open a savings, money market and certificate of deposit with the bank you choose. You can open a business savings account a deposit the minimum to establish the account. Ditto on the money market accounts but I have seen some that require a minimum account balance of $2,500. Generally, with such an account, the bank will waive monthly service fees.
I like the certificate of deposit for many ways. For starters, it is a tool you can utilize to get started on some "business credit" you will want and need down the road. For example, you can open a FIVE YEAR certificate of deposit at your bank of choice for say, $10,000.00. Then, you can ask your new banker to take that CD and secure a $10,000.00 loan with it over the course of a 5-year note. The bank will have no problem with this because they have your money. The good news is that this "trade line" will be reported under the name of your new LLC. Hence, you now have a $10,000.00 (high) trade line being reported to D&B and Experian Business Credit. When you apply for business credit, you will be able to provide them with this "loan" which is held in the business name. You do not need to disclose to the new vendor you are seeking credit from that this is a secured loan with a CD. That information is inconsequential. Especially in light of the fact that most business loans are "secured" with some type of business asset, be it equipment, a copier, or hard cash you've placed in a CD.
Here are some important reasons why you should have a separate business checking account:
> Makes it easier to compute and pay taxes for your business
> Is required to establish commercial lines of credit
> Is required to open corporate credit cards, such as an American Express corporate card
> Makes you look more like a real, professional business as opposed to a small and potentially unreliable operation
> Is required for accepting credit card payments; and
> Makes you look like a real company when paying bills and making payroll.
You'll usually just need a few documents to establish a business banking account. These will include:
1.) The businesses EIN
2.) A copy of the articles of organization/certificate of formation
3.) Your valid drivers license
4.) Your social security number
5.) Opening deposits
6.) A copy of your Operating Agreement
The bottom line is, you'll need basic documents that substantiate the name and general nature of your business. Regarding the last item listed, if the bank requires an additional document that shows you, specifically, are authorized to sign on behalf of the LLC, you can prepare a written resolution, which we will be happy to prepare for you.
It has been by experience, both personally and professionally, that banks will not open a business banking account for a person who IS NOT a managing member of the LLC. Hence, why the banks will request to the see signature page of your Operating Agreement. I have even seen situations where the managing member delegated this task, via a resolution, to the "Treasurer" of the LLC only to be told that "one of the managing members needs to be on the account." Electing a personal as an additional managing member only takes a few minutes to draft a one-page amendment to your Operating Agreement. SO fear not.
Once you set up your business banking accounts, use them ONLY for business purposes. The rule of thumb is simple. Use your business accounts for business purposes and use your personal accounts for personal purposes. If you don't keep the uses separate, and instead commingle business and personal funds, you'll make it more likely you won't have limited liability in the event of a lawsuit.
For additional information, please feel free to reach out to me via email at: allentmay@gmail.com