setting up a bank account for a small business

March 29, 2009 3:49 PM

Help me make sure I am setting things up properly dealing with invoices and checking accounts as a small business.

I know that my prospective clients won't pay anyone without either a SSN or an EIN number. So I went online and filed with the IRS as a legal partnership (with myself) and got an EIN number under the name of my business-to-be.

Now, my plan is to use that EIN number to invoice my client, and have them make out a check to the name of my new company. Then I will take that check and the IRS document giving my EIN number to the bank, and will tell them that I want to open a business checking account under the company name. Then I will use that checking account to pay myself and anyone else who works with me.

Is this a sensible plan, as far as it goes, or am I missing something? Will the bank accept the check and the IRS document as sufficient documentation to open the account? (I can supply my own ID too, of course, but I want the account to have the company's name, not mine...though I should of course be listed as the person authorized to use the account.)

Looking forward to thoughts/advice, and happy to share more info as needed.

posted by bingo to work & money (5 comments total)

The bank may require a DBA statement to open a business checking account account if the name of your business (i.e. the name on the account) doesn't contain your own name. They may ask to see a copy of your business license.
posted by RichardP at 4:09 PM on March 29

Also, is a legal partnership the best way for me to go? It is just me for now... does it matter if I'm a partnership with no partner, vs. being a sole proprietor? Also, I will definitely have freelancers working for me, whom I will need to pay.
posted by bingo at 4:12 PM on March 29

I have my own business and occasionally hire contractors. My clients are other businesses and the US government. Here's what has worked for me.

Incorporation

It's not clear to me if you've incorporated. Are you an LLC? I incorporated as a one-person LLC, for which I use my personal SSN. I'm not sure what the advantages would be of being a partnership with yourself.

I filed the LLC online at a site set up by my state. The site produced my incorporation papers as PDFs. I didn't need to file a DBA or get an EIN. The whole process took about 15 minutes and cost $87.

Bank account

I called the bank I use for my personal account and told them I wanted to open a business account; they told me what to bring. If I remember right, I brought the incorporation papers and two forms of ID.

The bank had no problem using my SSN on that account. The account lists my name and the business name. Clients make out checks to my business name; I endorse the checks with "PatoPata, dba My Business Name." Clients also wire money directly into my account.

I pay for all business expenses out of my business account. I pay myself occasionally by transferring money to my personal account. I keep track of all accounts in Quicken, with business expenses categorized according to the spots they will fill on the various IRS forms.

SSN or EIN

If you're incorporated, your clients shouldn't need your SSN or EIN, unless they're unusually picky. When I was an unincorporated individual, clients wanted my SSN so they could file their 1099s and tell the IRS what they paid me. But once I became an LLC, that changed, because the IRS doesn't require businesses to file 1099s about other businesses. So now my clients don't have to go through that hassle, which is one of the benefits of incorporating.

Since I incorporated, only one client has needed my SSN--a branch of the US government. They said that to pay my business they needed an EIN associated with that name, but failing that they were happy to use my SSN and personal name. And then they wired the money into my business account, so I'm not sure why they called me.

I accept credit cards. To get the merchant account, I had to pass a credit check under my personal SSN.

I recommend publications by Nolo Press. They have at least one ebook about incorporation, as well as software that will generate the papers for you if your state doesn't have an online system.
posted by PatoPata at 5:18 PM on March 29 [1 favorite has favorites]

Here's what we went through to set up our business and get the bank accounts in order:

1. Had a lawyer draw up incorporation papers.
2. Filed for EIN.
3. Brought EIN and incorporation papers to state, filed them there, and paid a $300 fee/tax - the fee in NY is probably different, this page has more info.
4. Filed a DBA, as RichardP notes. The fee in our county was $16.
5. Brought EIN, incorporation papers (stamped by the state), and DBA cert. to the bank. In theory the banks in our county are supposed to ask for DBAs. Our bank wanted our state incorporation paperwork and the EIN instead.
6. Applied for a state sales tax license. Even though most of our business is non-taxable we still have to file. The state sends us reminders every quarter.

Seconding PatoPata that most clients will not ask for your SSN. A couple of our clients have asked for a form W-9 so they can demonstrate that they do not have to withhold taxes for us, but they are the exception. For your invoice, just put "Please make all checks payable to BingosCompany" somewhere on it.

Our lawyer did the incorporation and walked us through the process step by step. He is an old friend and refused to bill us but it was supposed to cost about $1000.

The other thing that has saved us endless hassle is talking to our CPA. He got us squared away on sales tax, employee withholding, how to pay ourselves, etc. In one conversation, he saved us more money than we spend on him over several years. We pay about $600/yr for him to do both personal and company taxes and it is the best money we've ever spent.

So, consider talking to a lawyer or CPA or both, especially about whether you should be an LLC, S-corp, or whatever. There are pros and cons to each option.

Congratulations on your new business!
posted by txvtchick at 7:08 PM on March 29 [1 favorite has favorites]

This is some great advice for setting up corporations. However, if you're business is relatively small, you won't need to do this.

You can just call yourself a sole proprietorship. If you do this, then the tax id number for the business is the same as your own tax id number (i.e. your social security number).

You can even name your business as yourself (e.g. John Smith Consulting) and possibly avoid the DBA ("doing business as") paperwork depending on your state and county laws. If you do the fictitious business name route, you'll probably need to go to your city or county website and download their form for this, and to also publish the fictitious business name in some paper. (Here's a nice link on this.)

Then, you should still get a business license in your local municipality, and depending upon your business, make sure your zoning laws allow you to work from where you are working.

As a sole proprietorship, you would just claim your income and your expenses from your business on the IRS Schedule C form.

You can open an account in the name of your business (John Smith Consulting) with your own social security number and your business license normally.

In any case, you should be able to invoice your clients with an invoice template for MS Word. Just fill in the appropriate details and send to their accounts payable department.

Since you've gone through the trouble of getting an EIN, you can do the same thing as above with your EIN from the IRS.

Incorporating can be helpful if you want to limit liability; however, if you don't need that for your business, it can be an unnecessary hassle and expense right now. The list above is very good for incoporating, but if you're just doing some consulting, I'd wait on this. you won't need it to get a business checking account, and you won't need it to get paid.

Incorporating or LLCs are good if you feel you might get sued. Then your personal assets would be separate from your business assets. But you're going to need cash to pay the money, and, from my understanding, you must actually put a chunk of cash into your business. Otherwise, the person who sues you can "pierce the veil" of limited liability.

If you are worried about getting sued and don't have capital in your business (equipment or buildings or something like that), I'd recommend staying as a sole proprietorship and looking into some insurance for coverage, then putting some language in your consulting agreements limiting damages to the amount of your liability insurance.

Best of luck.
posted by davidamann at 8:34 PM on March 29