How To Open A Business Bank Account and LLC

Having a local business bank account can make things simpler and easier, but it's not always easy to get.

Opening a business bank account and forming an LLC (Limited Liability Company) are crucial steps in establishing your business. The attorney Mark Pierce who is a founding member of Company Sage and Wyoming LLC Attorney have opened thousands of bank accounts for their clients and produced this valuable resource on business banking.

Here's a step-by-step guide to simplify this process, with a strong recommendation to use an LLC formation company that includes legal professionals for the best results.

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1. Choose Your Business Name

Research and Decide on a Unique Name

Start by choosing a unique and relevant name for your LLC. Ensure that the name complies with your state's LLC naming requirements and is easily searchable for potential clients. Perform a name search on your state's business filing office website to ensure it's not already in use.

2. Hire an LLC Formation Company

Leverage Professional Expertise

To ensure accuracy and legal compliance, consider hiring an LLC formation company, especially one with legal professionals on their team. These experts can handle the paperwork, understand the legalities, and ensure everything is filed correctly. This step is particularly important if your business structure or situation has complex legal requirements.

3. File the Articles of Organization

Establish Your LLC Legally

Submit the Articles of Organization to your state's filing office. This document officially creates your LLC and includes information like your business name, address, and the names of the members. The LLC formation company you hired can assist in preparing and filing this document.

4. Create an Operating Agreement

Outline Management and Ownership Structure

Though not mandatory in all states, an Operating Agreement is highly recommended. It outlines the LLC's management structure, profit-sharing, and other operational details. An LLC formation company can help draft an agreement that meets your specific needs.

5. Obtain an EIN (Employer Identification Number)

Register for Tax and Business Purposes

An EIN, or Employer Identification Number, is essential for tax purposes and to open a business bank account. You can apply for an EIN through the IRS website. LLC formation services often include EIN registration in their packages.

6. Open a Business Bank Account

Separate Personal and Business Finances

With your LLC officially formed and your EIN in hand, it's time to open a business bank account. This step is crucial to maintain the legal distinction between your personal and business finances. Choose a bank that meets your business needs, offers favorable terms, and is convenient to access.

7. Maintain Your LLC

Ensure Compliance and Good Standing

After forming your LLC, ensure you meet ongoing legal requirements like annual reports and tax filings. Your LLC formation service can offer guidance and support in maintaining your LLC's good standing.

Online Banks for Your LLC

Once your LLC is established, these are examples of online banks where your formation agent could be opening your business bank account on your behalf:

  1. Azlo - Known for user-friendly services and low fees.
  2. Novo - Offers robust online banking solutions tailored for small businesses.
  3. Mercury - Ideal for tech-savvy businesses, with advanced online banking features.
  4. BlueVine - Combines banking with innovative business financing options.
  5. Radius Bank - Offers a range of business banking services with digital convenience.

Each bank offers unique features that might suit different business needs, so it's worth exploring their offerings to find the best fit for your LLC.

Common Reasons Why a Business Bank Account May Be Declined in the US

Inaccurate or Incomplete Application: One of the primary reasons for the decline of a business bank account application is providing inaccurate or incomplete information. Banks are meticulous about the details in your application. Any mismatch or missing information, particularly critical data like your Employer Identification Number (EIN), business name, or personal identification details, can lead to rejection.

Personal Credit History: The personal credit history of the business owner can significantly impact the bank's decision. This factor becomes especially crucial for new businesses that may not have an established business credit history. Issues such as low credit scores or a history of bankruptcies can raise red flags for the bank.

Unverifiable Business Information: Banks will conduct checks to verify the legitimacy of your business. If they are unable to confirm details about your business operations, location, or licensing, your application might be declined. It's important to ensure that all your business details are accurate and up to date.

High-Risk Industry: Certain industries are deemed high-risk by financial institutions due to regulatory concerns or a higher propensity for fraudulent activities. Businesses in these industries might face stricter scrutiny and a higher likelihood of application denial.

Inconsistent Cash Flow: Banks often review your business's cash flow to assess its financial stability. Inconsistent or insufficient cash flow can be a concern for banks, as it might indicate potential challenges in maintaining the account in good standing.

Lack of Proper Documentation: Not providing the necessary legal and financial documents, such as Articles of Organization or financial statements, can lead to your application being declined. Ensure you have all the requisite paperwork prepared and organized before you apply.

Previous Banking History: Your history with other banking institutions can also influence the decision. Issues like unpaid overdraft fees or a history of accounts being closed by a bank can negatively impact your new account application. It's crucial to maintain a positive banking relationship to avoid such issues.

Being aware of these common pitfalls can help you better prepare for the business bank account application process. In some instances, seeking advice from a financial advisor or your LLC formation service can provide further guidance and improve your chances of a successful application.