Opening a business bank account is a natural part of growing a company, creating a specific and professional channel for making and receiving payments as well as generally managing finances.
But business bank accounts aren’t merely bank accounts that are open in the name of the business in question. They offer account holders features and services that are specifically relevant to business owners, like business loans and high limits.
While business accounts certainly offer companies services that they can’t necessarily get via private accounts, it’s necessarily better for businesses of all types and sizes to opt for business accounts. It can depend on how well-established the company is, the volume of transactions being made, the need for financial support and more.
Indeed, having a business bank account comes with both advantages and disadvantages, so it’s not a cut-and-dry situation. Also, there are certain criteria that need to be met in order to qualify for business bank accounts.
Who Can Get a Business Bank Account?
Requirements may differ slightly from one country to the next, but generally speaking, they’re pretty similar. In the UK, business bank accounts can be opened by either individuals or entities that are legally involved in business activities.
The main groups that are able to open business bank accounts include:
- Limited Companies (Ltd.): Limited Companies are actually required to use business bank accounts in the company’s name, they’re not legally able to operate by means of personal accounts. The company must be officially registered with Companies House, and from there, the bank in question will need the company’s registration number, articles of association and possible some other related documents too. The process will need to be done by the directors of the company.
- Sole Traders: Sole traders operating as individuals can open business bank accounts for the purpose of keeping business and personal funds separate. In some cases, sole traders can use their own name for the account, but they can also choose to use the name of the business if it’s properly registered.
- Partnerships: Individuals who start a business as a partnership can open a business bank account on behalf of the partnership in question. To make it official, the bank will need personal information from the partner, including personal details, identification and more.
- Limited Liability Partnerships (LLP): An LLP is a business that’s formally registered with Companies House. For an LLP to open a business bank account, they’ll need to provide the bank with the personal details of the members, proof of registration and possibly an LLP agreement.
- Contractors and Freelancers: Freelancers and contractors alike have the option to open a business bank account under a trading name or even if they just want to separate their personal and business finances.
- Non-Profit Organisations: Non-profits and charities that are formally registered in the UK are able to open business bank accounts. To do so, they’re required to provide the bank with proof of registration with the Charity Commission (or whatever body is relevant to them) as well as other governing documents of the organisation.
In the UK, the regulations dictating who can and can’t open a business bank account are pretty broad, there are just certain protocols that need to be followed and documentation that needs to be submitted. Limited Companies are the only types of businesses, however, that are legally required to operate using a business bank account as opposed to a personal account, however.
Requirements for Opening a Business Bank Account
Depending on the type of organisation in question, the specific requirements for opening a business bank account may differ slightly, the general requirements may include:
- Proof of Identity
- Proof of Address of Company and Relevant Directors/Partners/Owners
- Proof of Business Registration with Companies House for Limited Companies and Partnerships,
- Business Plan or Expected Turnover
- Directors’ or Partners’ Personal Details for Limited Companies and Partnerships
- Charity or Non-Profit Documents for Charities and Non-Profit Organisations
Business Bank Account Vs. Personal Bank Account
The two options when it comes to opening bank accounts are either personal/private accounts or business accounts, but what’s the difference?
The main factors that set business and personal bank accounts aside include:
- Purpose: Business accounts are only intended for use by businesses to manage finances, while personal accounts can be used by private financial management or professional use in some cases.
- Eligibility: Anyone can open a personal bank account, but the requirements for opening a business account are more specific.
- Fees and Bank Charges: Business accounts tend to charge more and higher fees than private bank accounts because the former offers more services than the latter.
- Transaction Limits: Business bank accounts tend to have higher transaction limits than personal accounts do.
- Access to Business-Specific Services: While personal accounts provide general services, business bank accounts offer access to services that are specific to businesses, including loans, credit and more.
- Tax Reporting and Compliance: Business accounts tend to include some management and tracking of tax-related issues, helping with compliance, while personal accounts don’t and tax needs to be managed manually.
- Auditing: Personal bank accounts tend to be less prone to being audited than business accounts are.
Do You Need a Business Bank Account?
It all depends on the business in question. You’ll need to look into the pros and cons of using a business bank account as opposed to a personal account, along with the requirements to open one.
At the end of the day, having a business bank account can offer companies a great deal of advantages and extended services, but that doesn’t mean it’s the best option for everyone.