As a business owner, establishing a separate bank account is the first step to be taken. Besides the fact that you may have your own personal account, using it to manage business finances could be a problem for you.
Corporate accounts are to deal with the organization’s finances, getting customers’ payments, and making the payment of the employees and suppliers. Being compliant with all legal requirements and accounting practices, having a corporate bank account reflects your business more professionally and offers protection against any financial loss.
This article focuses on the necessity for businesses to have their own accounts, and you will learn why it is a key factor.
Content Outline
What is a Corporate Account?
The business or company account is a bank account that’s been set up with the name of the company. In other words, the business account serves as a primary tool for various business transactions and earnings. For companies with a board of directors, they should create a corporate account, which will allow for easy financial administration of the organization.
The vast majority of major banks and international financial institutions provide business entities with corporate accounts.
Businesses will have to open a corporate account as an obligation of the laws and regulations of the country your business is based. Account opening of banks may be a time-consuming process, though in any case, opening business accounts for the purpose of efficient handling of enterprise finances is still a must.
Keep in mind that opening a corporate account and operating the account are absolutely different things. Corporate accounting is one of the accounting that specializes in preparing the financial accounts of the company and the management of cash flow.
How Does A Company Account Work?
A corporate banking account operates, just like any other bank account.
You can use it as a source for withdrawing any funds from your business and dealing with various business expenditures. The bank account can also enable you to bank online and carry out business transactions online.
Banks also give their clients checkbooks and debit cards to help them conduct transactions with their corporate bank accounts.
Are A Business Bank Account And A Company Account The Same?
The term ‘business account’ is usually used synonymously to the corporate account.
However, they have some points that make them unique from each other, for instance, business accounts and company accounts.
For companies that are medium-sized to large firms, a corporate account would be more suitable, which is ideal for small business owners. Hence, the business account is more general and open to many people, but the corporate account is for the use of limited liability companies.
Who Will Be Allowed To Create Corporate Accounts?
Any business organization such as corporations, partnerships, sole proprietorships, and limited liability companies has the freedom to open a business account. The documentation and criteria requested for the opening of corporate accounts are different depending on the type of business organization.
Nonetheless, only a corporation that is incorporated under the law can create a company account. The corporation directors’ board should pass a corporate resolution which would be the ground for opening a company’s account. Consequently, it is more comfortable to start a business bank account.
Independence of Operations
Managing corporate accounts is more formal than personal bank accounts. Such accounts can only be operated by a list of authorized signatories. The bank is allowed to designate the signatories, and this can be done through the approval of the board of the company holding the account.
On the other hand, a business account typically acts as a personal bank account of the owner of the business even though the account may be titled in the name of the business. The owner of this business can sign and log into this account without having to appoint any authorized field signatories.
Liability to Creditors
As a company is regarded as one legal person, the corporate bank accounts are not deemed as personal assets of the shareholders. This way, corporate creditors are the only ones who can claim the property of the company. Such accounts cannot be subject to meet obligations of unpaid personal debt of any of the shareholders in the company.
While the business account is attached to the business owner’s personal assets, creditors still have the authority to attach it to the owner’s personal creditors.
What Are The Advantages Of Having A Corporate Account?
Here are the key advantages of having a corporate account.
Boost Credibility To Your Business
A properly opened company account will portray to your investors, customers, and lenders that your business is a serious operation. People feel more safe to deal with businesses with corporate accounts. Furthermore, suppliers are likely to favor those who have a business account and give better deals.
Promotes Financial Management
Mostly, the corporate account makes it easy and convenient to keep your business expenses separate from the personal. You will be able to be more transparent about the financial status of the company once you establish a corporate account, just by providing more detailed monthly reports and bank statements.
Improved Personal Liability Protection
Separating your corporate account from your personal funds would ensure that you do not incur any personal liability for business debts. In short, the whole company is responsible for the presence of the funds if your company has a corporate account.
Less Problems With Tax Reporting
Creating a different bank account for your business helps you to settle all business-related tax returns and also no business income is mixed with the individual income and vice versa.
The most important is that when you are sharing bank statements whether it is a third party or to an authority, your company and personal financial details are separated since you have a corporate account.
Better Personal Liability Protection
As a corporate account holder, you are not required to pay for any profit loss that may arise from the business failure, it is the responsibility of your company, not the owners.
A personal checking account does not provide the same protection that a business account does.
Increase The Corporate’s Credit rating
If you do not have a corporate bank account, you must rely on your personal credit score when you are granted any loans. At the same time, setting up an account for a company might improve the company’s credit rating and provide convenience for the organization to access financial assistance.
Are There Any Differences Between The Corporate Bank Accounts And Personal Accounts?
These are some of the critical differences between a corporate account and a personal account.
Signatories
For personal account usage, only an individual and at most two signatures can be involved.
Corporate accounts could designate more than one person who can sign.
Fees
When opening a bank account, a corporate account has higher charges compared to a personal one. Nonetheless, the service fee could be exempted for your corporate account when the bank’s minimum balance requirement is met.
End-Use
A corporate account serves the purpose of issuing a business income and paying business expenses.
A personal account is used to pay for personal expenses as well as personal parking funds.
Liability
The opening of a company account in a corporate bank prevents individuals from having to pay the bills in the case of company debts.
Individual accounts don’t always have the option of protecting the user. In the event of insolvency, creditors can reach, and take assets off the personal account to meet unpaid obligations.
What Are The Required Documents To Open A Corporate Account?
In the course of opening a corporate account, you will submit a wide range of documents to verify your identities and to do the bank KYC compliance check. Read HSBC documents checklist.
The specific set of required documents will be different depending on the banks and the county you are located in. These are the things you need to expect when you open a corporate account :
- Documents that identify the incorporated business entity, which are the certificate of incorporation, business registration certificate, and articles of association.
- A proof of business that could show the financial statements or business plan.
- Proof of business address
- A copy of the board resolution of the company, which authorizes the opening of the account
- Identification cards, like a passport or any identification documents issued by the relevant authorities of the principal shareholders or the actual beneficial owners of the company
- Residency evidence of the principal shareholders or beneficial owners.
- Signatories who are authorized to operate the corporate bank account
When opening a new corporate account, make sure you ask the bank about what documents are needed for you to set this up. Failure to send or provide documents according to the bank procedure can cause the bank to not approve your application for bank account opening.
Top Tips On How To Keep Your Business Bank Account Secure
Managing corporate bank accounts will build up unique obstacles that are not likely to occur during banking activities. This is important if you are only used to keeping a personal bank account.
Here is a scope of things that corporate account holders have to cover to avoid any issues.
Carefully Review Initial Offers
Usually, most banks give out a lot of benefits to motivate companies to get company accounts. They provide business banking services such as higher interest rates, cash bonuses for initial deposits, and the waiver of maintenance fees for the first year. Higher interest rates on business turnovers and free or low-cost electronic transactions are the main advantages.
One thing that is important to consider is to ask each institution to clearly state if they have introductory offers to a corporate account or not.
Make An Investment Strategy
Think about having an investment strategy for your corporate account. Each particular bank has its own sort of saving and investment opportunities depending on the goals. Some of the common choices offered by the banks :
- Dividend Reinvesting: Utilizes an automated system to reinvest dividends or acquire new funds which in turn leads to an increase in companies’ earnings. First, you can pick from several alternatives such as real estate or stocks.
- Portfolio Rebalancing: When the financial advisor of the bank conducts regular checkups, they review your company’s investment portfolio and then they make those decisions based on every market condition according to your company’s business earnings and goals.
Be Sure Your Deposits are Insured
To ensure that the bank is secure and there is enough insurance for all the deposit types, run a brief check before opening a corporate account. It is best to open a corporate account with reputable financial institutions that provide a secure and resilient banking system with insurance coverage and fund protection. So, in case the bank closes down, you will not lose all your hard-earned money.
By compulsion, some countries provide deposit insurance for participating banks and financial institutions. For instance, all Hong Kong licensed banks give out an insurance protection amount of up to HKD 500,000 deposit per person.
Make Sure To Check The Fees Payable
While the fees for a company’s accounts may vary, monthly service fees and annual maintenance fees are the standard fees. On top of that, banks might ask to open the accounts with a deposit and an opening fee.
Also, transactions for cash withdrawals by ATMs and termination charges for closing the corporate bank account can be added to the other fees you would pay.
Banks will amend terms by waiving the fees but ask the account holder to fulfill additional prerequisites, like maintaining minimum deposit requirements.
Find Out If Any Other Additional Services/Benefits Are Offered To Corporate Account Owners
As a business owner, you will be more likely to enjoy the extra benefits your bank offers including an overdraft credit, pre-approved business loans up to a specified amount, mobile cheque deposit, and virtual assistance.
Based on the type of business you are operating, it might be much better for you to pick a bank that offers professional services and features that will meet your banking needs.
What Is The Importance Of Companies Having a Corporate Account?
Whether your company is small or big, regardless of its nature, the first thing you need to do is to open a company account for a smooth way of receiving, controlling, and remitting the company funds.
Of course, it is essential to consider all the necessities of your company by the time you decide to open a business bank account.
To establish a business entity in Hong Kong and register a company account, the experts at FastLane would love to help you by being your corporate secretary. That is one of the services of our professionals. Our experts can help you to operate a corporate account or any other business account. Moreover, it is sometimes necessary to use alternative banking solutions after evaluating the nature of the business. Contact us to find out how we can help you!
Frequently Answered Questions
The majority of banks usually charge an initial fee for setting up any type of account, including a corporate account.
The specific amount of money it costs to have a corporate account open varies on which bank provides the service to the corporate sector.
Typically, any business entity established by law may set up a corporate bank account.
Likewise, unincorporated business entities like small businesses employing partnerships or sole proprietors can also choose to have a regular business account of their own.
