- 1. Decide How the Account Will Be Managed
- 2. Choose the Best Small Business Bank
- 3. Gather the Necessary Documents
- 4. Apply for the Account
A joint account provides each business partner with full transparency regarding company finances, including its saving and spending habits, and is generally used by a partnership or an LLP
Limited Liability Partnership . This allows all partners to consolidate their finances into one account so that managing and protecting company funds is easier. As a result, bookkeeping will be more efficient and tax preparation will be streamlined.
If you need a small business checking account for your partnership, Bluevine is an excellent choice. There are a few different accounts to choose from, and some have no minimum monthly balance and a 2.0% APY on balances up to $250,000 with qualifying transactions.
How to Open a Joint Business Bank Account
Step 1: Decide How the Account Will Be Managed
When we think of a joint account, we might immediately conclude we are talking about two people. However, in a business partnership, there can be multiple partners, and a joint bank account gives all partners the same access. This makes it very important to understand each partner’s intentions before any funds are spent.
Set Ground Rules
- Establish which partner or partners will be in charge of bookkeeping
- Define each partner’s role in the business
- Have an open discussion to establish spending guidelines
- Develop a plan regarding when to consult with partners on large purchases
- Understand each partner’s strengths and weaknesses with money to balance one another out
- Have your financial institution add a rule that two signatures are required on every check so that one partner can’t write checks alone
- Set spending limits regarding ATM withdrawals and debit card purchases
- Train someone to be your backup in the event of a family emergency or prolonged absence
As a partner, you can’t remove any of the other partners from the account. Since all are equal owners, they would have to willingly consent to be removed from the account—or the account would need to be closed. If there’s a disagreement among partners or the partnership is dissolved, it may be best to close the account. The remaining partners, if any, may open a new account to avoid conflict.
Step 2: Choose the Best Small Business Bank
Choosing a small business bank should be fairly easy since you already have all the other components in place. To find the perfect account for your business, you will need to do a little research. You will want to go with one of the best banks for small businesses and ensure it offers a product that will be a good fit for your company’s needs.
If you plan to use a local bank, you can call or go in to talk to a new accounts representative regarding the type of accounts offered. Most banks have their account information online, so you can search their websites to get the details. This will be helpful if you want to compare local banks to see which may fit the bill.
Depending on the bank you choose and the number of partners you will be bringing to the account opening, you may have to make an appointment. Some businesses with many partners may need to meet in the bank’s conference room if the group is too large, especially if the new accounts desk is in the middle of the bank’s lobby.
If you’re planning to open an account online, visit the bank’s website so that you can compare the different accounts. Once you have decided on one, you can look at the opening procedures so that you know your next step.
Step 3: Gather the Necessary Documents
Most banks ask for similar documentation for all business accounts. A partnership account will require some additional information depending on the legal structure.
Here is a list of required documents:
- Name of business
- Address of business
- State business is established In
- Legal documents used to establish business
- Date of establishment
- Partnership agreement
- Names of all natural owners or partners with at least 25% ownership, voting rights, or shares
The bank will also need information about the partners, which will be added to their individual bank profiles. Some of this information may include:
- Full name of each partner
- Address
- State Issued Identification Card
- Social Security Number
- Percentage of Ownership
To ensure you have all the correct information, it’s a good idea to check the bank’s website ahead of time for a list of required documents needed to open a joint account. To help you out, our guide on opening a business bank account contains a free downloadable checklist with the documents needed per business structure.
Step 4: Apply for the Joint Business Bank Account
Whether you have picked a local bank or an online bank, the opening process will be very similar. You will
- pick the account type you have settled on;
- present your company’s supporting documents; and then
- have all the partners sign in their designated signatory places.
In most cases, your account will be ready to use immediately, though some banks need one night to upload the account to the live server to make it active. Once that’s done, you can begin writing checks and using your debit card.
Pros & Cons of a Joint Business Bank Account
| PROS | CONS |
|---|---|
| Combines funds in one account, resulting in more efficient bookkeeping and streamlined tax preparation | Opens up possibility of financial mismanagement, as all partners have access to funds |
| Allows owners equal access to all business funds | Makes each owner responsible in the event one partner makes a bad financial decision |
| Has increased FDIC coverage since each co-owner is insured up to $250,000 | Could result in funds being seized to satisfy debts held by one single partner |
| Separates business and personal finances effectively | Can be complicated to manage when dividing assets if the business fails or closes |
If you’re on the fence about whether you and your business partners are ready to open a joint account or not, consider linking individual business accounts together. If each of your partners has an account and everyone has access, you can use this to do a trial run. This will allow you to see their individual spending habits. When you feel comfortable, you can switch over to a joint account.
How to Avoid Risks Associated With a Joint Business Bank Account
While there are many benefits to a joint account with business partners, there are also some risks involved. Here are a few tips so that you can be proactive and minimize the risks.
- Ask your partners about their financial situations. The financial situation of each partner plays an important role in managing a partnership. If one of the members has a financial setback, it could negatively impact the business funds along with the credit of all other partners. If all partners remain in a good financial position, it will allow everyone to rest easy that hard-earned business dollars are safe and sound.
- Discuss the role each partner will play in the business to set clear expectations. When a partnership is formed, each person likely has a strength they have brought to the table. For instance, one partner is likely to be the best fit to manage the financial portion of the business. Giving everyone a designated work role will allow each partner to work with their strengths while monitoring the finances of the business without taking control using online banking.
- Create a series of permission steps for a partner to withdraw a large sum of money. A good partnership agreement or a financial action plan will set the ground rules, allowing each member a measure of confidence knowing one can’t make a large withdrawal without discussing it with the others. When such an agreement is in place, it gives each partner peace of mind knowing there is full transparency regarding large withdrawals or purchases.
- Keep good financial records. The best way to know if a business is thriving or if it needs improvement is to keep financial records up-to-date. Having a designated partner who is responsible for this recordkeeping will help streamline this process, as it generally causes confusion if each member is trying to add data to the accounting software. Allowing the financial manager to obtain and enter expenses will help all partners to get a good financial picture of the business with ease.
- Choose a bank that’s a good fit for the needs of your business. When opening a joint account, it’s a good idea to do your research to find a bank with all the perks you need as a business. Comparing accounts can be helpful. Also, take time to visit your local branch to get account information during this process.
Frequently Asked Questions (FAQs)
What type of business is best suited for a joint bank account?A partnership or an LLP is generally the best fit for a joint business account. All partners can access the account, which helps consolidate business finances into one account. As a result, bookkeeping will be more efficient and tax calculation will be much easier.
How do you choose the best bank to open a joint account for business?A bit of research will be required for this. Most banks have their account options listed on their websites. You can also call or visit a local branch if you want to use a bank in the same area you operate your business. By comparing the account benefits, you can narrow down one account that’s the best fit for your company.
Do all partners need to be present at the time the account is opened?When opening a business bank account at a local branch, it’s beneficial to have all members present. This way, everyone can present their personal information and sign any necessary documents. When the account details are discussed, everyone will benefit by having a clear understanding of how the account works.
If you’re opening an account online, the process will be a bit different. You may assign one member to be in charge of opening the account, and other members will sign the required documents electronically. It’s still beneficial to review the details of the account and establish ground rules for accessing company funds.
What are the benefits of opening a joint business bank account?A joint business account allows owners to keep all business funds together in one account; makes it easier if the business has a bookkeeper or tax accountant who will be helping balance financial statements for accounting and tax purposes; gives all owners access to online banking, so they can monitor the funding coming in and out of the account; and increases FDIC insurance coverage since each co-owner is insured up to $250,000.
Bottom Line
A joint bank account can be a great asset to business owners working together as partners. Having all the funds in one account will simplify accounting and filing year taxes easier. Setting ground rules before opening the account makes the financial portion of the partnership run smoothly, and having a detailed plan for making withdrawals makes spending much easier. These will allow each partner to perform their assigned role with confidence, making the partnership stronger and allowing the business to thrive.
