Opening a Bank Account for Your Business

Written by Noel French

November 16, 2020

Opening a bank account for your business can be surprisingly complicated. There are only a few key pieces of information that banks are actually required to collect by law, but many banks choose to require additional information and documentation, and that information and documentation can vary depending on whether your business is set up as an LLC, a corporation, or some other entity type. To further complicate things, there’s just not a lot of standardization in the process of opening business bank accounts, and the requirements can vary from bank to bank, branch to branch, and even manager to manager.

The best way to avoid a hassle at the bank is to call the bank where you plan to open an account and ask an account manager what documentation they will require. That way you can try to have everything ready before you go. That said, having as many of the following documents as possible will increase the likelihood that you can get everything accomplished in one trip without having to wait on hold to speak to a staff member.

Documents and Information That You’ll Need Almost Every Time

1. An EIN (or an SSN or an ITIN if you’re a sole proprietor). If you have an entity set up, like an LLC, the bank will almost certainly require an EIN to open the account. Some banks will let you use a SSN or an ITIN if you’re the only member of an LLC, but that’s rare. If you are a sole proprietor, meaning you are the only owner of the business and you haven’t set up an entity, you’ll need your personal tax identification number, meaning an SSN or an ITIN, as applicable.

2. Formation Documents. If you’ve set up an entity, like an LLC or a corporation, the bank will likely want to see your formation documents. The precise name of this document can vary from state to state, but for LLCs its usually called a Certificate of Organization or Articles of Organization, and for a corporation its typically called a Certificate of Incorporation or Articles of Incorporation.

You probably won’t need these if:

Sole proprietorships and partnerships do not have any organizing documents, so the bank shouldn’t ask you for these (note that limited partnerships and limited liability partnerships do have organizing documents that the bank might ask for).

3. Governing Documents. If your business is a corporation or if it has more than one owner, the bank will likely want to see governing documents. For an LLC this will be an operating agreement; for a corporation, this will likely be bylaws; for a partnership, this will be a partnership agreement. The bank wants to see this to make sure that the person opening the account has the authority to do so.

You probably won’t need these if:

Sole proprietorships should not be required to show governing documents because they don’t have any. Single-member LLCs are also almost never asked for governing documents, though exceptions occur and a bank will rarely ask to see the single-member LLC’s operating agreement.

4. Action of the Incorporator or Organizer. In many states, including Michigan, the individuals forming a company and the owners of the company are not necessarily the same people, so it possible that the names of the owners won’t appear on the official paperwork filed with the government to form the company. When that’s the case, the bank will usually ask to see paperwork establishing that the owners actually have rights to the company. This usually takes the form of an Action of the Incorporator for corporations or an Action of the Organizer for LLCs. In either case, these are documents in which the person who formed the company names its owners.

You probably won’t need these if:

If you’re the only owner and you formed the company, or if you live in a state where the owner has to be listed in the filing paperwork, then you bank probably won’t ask for this.

1. A Business Address. The bank will require an address for your business. This can be a residential address if you’re running a home business, and some banks will allow you to use a P.O. Box. You should not use your registered/resident agent’s address, unless your registered/resident agent is an owner of the company. If you’re using a third-party service registered/resident agent, the registered/resident agent’s address is not the same as your business’ address.

2. Banking Authorizations. Sometimes banks will ask to see a resolution from the business’ owners or its board of directors authorizing the person appearing at the bank to open accounts on the banks’ behalf. This happens most frequently when a business has multiple owners and fewer than all of the owners go to the bank to open an account.

You probably won’t need this if:

It is very unlikely the bank will ask for this if the business only has one owner.

3. Certificate of Authority/Registration of Foreign Entity/Etc. Most states require businesses that were formed in another state to file some sort of registration before conducing business domestically. For instance, if you formed a Delaware LLC but are doing business in Michigan, you need to file a Michigan Certificate of Authority. The name of this registration can vary widely depending on the state. Banks occasionally but infrequently require you to file this form before opening a bank account at a local branch.

You probably won’t need this if:

You should not be required to have this if you are opening an account in the state where your business entity was formed.

Other Common Issues

For various reasons, including ignorance, banks will occasionally ask for something truly out of the ordinary or difficult to accommodate. Some of the issues we’ve seen are listed below. If you receive one of these requests, you may want to consider going to a different bank if the manager refuses to accommodate you.

1. Asking for all of the members to be physically present to open the account. There is no legal requirement that all of the owners appear at the branch to open an account. Indeed, for entities with many owners or owners who are geographically dispersed, this may be all but impossible to accomplish.

2. Requiring a primary business address in the same state as where the entity is registered. It is extremely common for businesses to be formed in one state without having a meaningful business presence in that state. For instance, if you formed your business in Delaware but operate in Michigan, you probably don’t have an office in Delaware. Your bank shouldn’t require that you have a Delaware business address.

3. Requiring an owner to provide a residential address in the state where the branch is located. We have only encountered this once, just before publishing this blog post. The reason given was that, if the business closed, the bank needed a way to reach the owner. Needless to say this is a nonsensical reason, as banks are perfectly capable of sending mail to out of state residential addresses (this also isn’t a reason generally – banks are, like all other parties, able to send mail to the last address they have on file without incurring any sort of liability, so it does not matter if the business shuts down and the mail is never opened).

Opening a US Bank Account From Abroad

Opening a bank account while in the US can be difficult because most banks require at least one owner or manager of the business to be physically present when opening the account. One way around this requirement is to hire someone in the U.S. to temporarily act as a manager to open your account, but this can be an unattractive option because of the potential for fraud.

One great option is Mercury Bank, which is designed for ecommerce entrepreneurs and allows non-residents to sign up for an account. Unfortunately, many other online banking services like Azlo only service U.S. residents, which eliminates them as an option for international entrepreneurs.

Can My Lawyer or Accountant Open an Account for Me?

No, not unless you want to make your lawyer or an accountant a (temporary) owner or manager of your business (which we wouldn’t recommend to you) and they agree (which we wouldn’t recommend to your lawyer or accountant). In days gone by, banks were a little more relaxed in their requirements for opening an accounts and you could have an agent open an account on your behalf. Those days are mostly over, though, and you should plan to have owners or management to open your account.

Why Can It Be So Complicated to Open an Account?

In defense of banks, while there are very few specific requirements for what information must be collected when opening an account, they and other financial institutions are subject to Know Your Customer laws and regulations that were strengthened in the wake of the 9/11 terrorist attacks to try to cut down on money laundering for terrorist and criminal organizations. The rules can be vague, so banks sometimes require more information than is strictly necessary to reduce their liability. That, combined with poor training as it relates to small business banking, lack of standardization in private business documentation, and confusion over who actually owns the business because of opaque business registration listing rules in most states, can lead to a frustrating experience for small business banking clients.

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