Bank account for small business
Opening a Small Business Bank Account with Bad Personal Credit
Posted on June 09, 2014 by Tiffany C. Wright
Your business checking account is a critical component in operating your business.
This article is a continuation of my previous article, Opening a Sole Proprietor Bank Account with Bad Credit. The “Opening a Sole Proprietor Bank Account” discussed what actions to take if you have bad personal credit when opening an account as a sole proprietor and provided some how-tos. However, this article discusses the legal options to explore to remove or lessen the impact of bad personal credit on your business bank account, and what actions to take to utilize those options.
To develop business credit and protect your assets, open a bank account as a separate legal entity, NOT a sole proprietor
Instead of operating as a sole proprietor, which means that you simply start operating a business under a name that is not yours, I highly recommend adding a few steps and forming a separate legal entity. If you convert your sole proprietorship into a legally separate business operating as a limited liability company (LLC), corporation, limited partnership, or other separate legal entity, to open a business bank account you will need the articles of organization (LLC) or incorporation that you filed with the state.
Some potential barriers
In most states an LLC is the easiest to form and operate. However, some states, for example, Ohio, do not allow you to form a one-member LLC, which is what a sole proprietorship would be. In that case you can form a corporation. However, another option is to form a two-member LLC but only provide the second member with a 1% stake in the LLC. This structure gets more complicated and will require a discussion with an attorney. This is why a corporation will be the easiest to form.
Your resolution must be signed by all parties.
Resolutions required for multiple owners
If you decide not to operate as a sole proprietor (which is one owner – you) and, instead, add one or more additional owners, you will need to provide the banker opening your account with a resolution from the other owners or board. The required resolution must grant you the right to transact financial business for the company in general, or grant you the right to specifically open and control the bank account. However, you do not need to worry about running out and hiring an attorney to draft a resolution. All major banks and many smaller banks provide resolutions that business owners can sign and submit. You can also use these resolutions as samples. To open the business bank account, you will also need the tax identification number for the business and a form of personal identification.
If you have poor personal credit
If you have a poor personal credit score, the formation of an LLC, corporation or similar separate legal entity eliminates the use of your social security number to open a business bank account. File the required documents with the IRS to obtain an employer identification number, which is the tax id for businesses. This process is fairly straight forward and can be done online at the www.irs.gov site in under 20 minutes.
Personal credit AND asset protection
Your company’s business bank account is the first step in building credit for your business separate from yourself. Take advantage of this opportunity by creating a business considered legally distinct from you from the beginning, before you open a business bank account. Even if you have great personal credit, you will protect your personal credit by keeping your business credit inquiries off of your personal credit report. In addition, converting your sole proprietorship into a separate legal entity will help prevent pursuit or attachment of your personal assets for issues arising from your business.