A business owner must maintain a separation between their personal and business finances. A corporate account is a bank account opened in a company’s name. It is used to facilitate transactions and keep funds.
Every tax-paying small business should have a corporate bank account for business banking and its numerous advantages. Learn the essential aspects of a corporate bank account by reading on.
What is a Corporate Account?
Meaning of Corporate Account: A corporate bank account, also known as a business bank account, is used by a company to store its funds. Businesses and organisations utilise corporate accounts for investment and savings objectives and their routine banking needs.
Regardless of the size of their business, all business owners must have a business bank account.
Who can open a Corporate Bank Account?
Any business organisation or entity can open a corporate bank account, including sole proprietorships, partnerships, and limited liability companies.
A company’s board of directors must provide explicit authorisation through a corporate resolution to open a corporate bank account.
You must only have a corporate bank account as a limited liability corporation.
Documents required to open a Corporate Account
Listed below are the documents required for a corporate account:
- Certificate of Incorporation
- Proof of Address
- Filled application form
- Article of Association
- Memorandum of Association
- Board Resolution
How to open a Corporate Account?
It should be noted that the eligibility requirements and documentation needed to open a corporate account vary by business structure. The following are some of the most important aspects of opening a corporate account in India:
- The business must have a board of directors if the owner desires to open a corporate account.
- Individuals and unlisted companies cannot open corporate accounts in India.
- A company’s board of directors must approve opening a corporate account. The conventional procedure calls for a meeting at which a vote is made to finalise a decision.
- In addition, the directors engage in a comprehensive discussion regarding the account’s principal function, access choices, and features.
- Without a board of directors, the owner of a small business does not need anyone’s consent or vote to open a new corporate account.
- Corporations choose a specific individual, the board treasurer, to open and manage their corporate bank accounts.
Why is it so important for a business to have a Business Bank Account?
If you own a small business or receive customer payments frequently, you should register a business bank account.
Even though a business bank account is not required in all circumstances, it offers numerous benefits to business owners through its financial services such as:
1. Financial and individual liability coverage
All firms and corporations are considered legal entities distinct from their owners and shareholders. Consequently, if your business fails and you have a corporate bank account, you cannot be held personally accountable for any profit loss.
In addition, keeping your business and personal accounts separate provides an additional layer of security for your cash and firm as a whole.
Your business cannot be held accountable, nor can your assets be seized if it incurs debt.
2. Maintains a professional appearance
Regardless of who your business communicates with or contracts with, a business bank account makes your company appear more professional.
When negotiating contracts with suppliers and vendors, you are more likely to receive better terms if you utilise a corporate bank account because it helps your firm appear more professional and reliable. Additionally, clients and staff are more likely to trust your firm if you make and receive payments via a business bank account.
3. Simplifies income tax returns
A separate business bank account is valid and convenient when preparing tax returns because you can see your income and expenses.
Thus, you can avoid conflating personal and corporate expenses and file an accurate tax return. Additionally, if you are ever required to give your bank statements to a third party or authority, your company and personal financial information are kept separate.
4. Personal accounts are subject to restrictions
When you sign up for a personal bank account, there are frequent stipulations on how to use it.
There may be restrictions on using your bank account for business activities, mainly when direct debits and collecting cash from clients are involved. Setting up a separate bank account for company expenses can prevent this danger.
5. Contributes to business credit rating
Having a separate bank account for your business improves its credit score.
If you do not have a business account, you will have to rely on your credit rating, making securing a loan or business credit more difficult.
When giving loans to corporate bank accounts, banks are more lenient, especially if the business has an excellent credit rating.
You can gradually establish credit by constantly using your business bank account for all transactions.
6. Access to business account advantages and special offers
Several banks provide promotional offers when opening a corporate bank account for the first time.
You can receive a terrific bargain with free banking for a set time or pay less for banking services through such promotions.
Free or low-cost electronic transactions and higher interest rates on business revenues are advantages.
7. Better business organisation and management
Managing expenditures and planning is simplified when a business has a separate bank account. It is more convenient because only your business’s finances are included in all reports and bank statements.
Pitching to investors provides clarity and makes demonstrating your organisation’s actual financial standing easier.
8. Business expansion, development, or sale
If you ever decide to extend your business into a partnership, you will need a business bank account to execute the change.
Again, you would not want your company partners to be privy to your personal financial information.
Lastly, if you desire to sell your firm, having a corporate bank account to track the business’s success and present a clear summary to the buyer is advantageous.
A potential buyer examines your business transactions when you sell your company.
If you have a personal bank account instead of a business account, the buyer will have access to all your personal and confidential financial information.
What factors should be considered when opening a Corporate Bank Account?
There are disadvantages to opening a corporate bank account that you may not be familiar with when opening a personal account. To evaluate your company’s profile, banks will do a considerably stricter risk assessment, need a great deal more evidence, and frequently conduct an interview. A few factors are mentioned below:
1. Fees and other conditions
Banks typically levy maintenance costs for corporate business accounts, such as a monthly service fee. If your account meets the bank’s minimum balance requirements, you may not have to pay this fee.
Depending on their offer, banks may sometimes charge an account opening fee or require an initial deposit. Additionally, banks charge monthly transaction fees and early termination costs if you decide to terminate your business bank account.
Additionally, banks may charge a flat fee for ATM cash withdrawals and impose daily limits on the amount and number of cash withdrawals permitted.
Depending on your business type and how you want to conduct it, you should choose which bank’s corporate account fee criteria are most compatible with your firm.
2. Introduction deals
As previously said, several banks have introductory incentives to entice you to create an account with them rather than their rivals. These promotional advantages may include a bonus on initial deposits, a discount on the opening account charge, or both.
It would be best if you thoroughly investigated all initial bank offers to choose which one appeals to you.
3. Additional services and benefits
Additionally, it would be best to consider any external benefits of creating a business bank account with a specific bank. The supplied services and features are what differentiate them from one another and might assist you in making a decision.
Some banks offer internet banking for monitoring business expenses and conducting transactions, and credit cards for businesses are also available.
4. Insurance & financial security
Before opening a corporate account, you should confirm that the bank you join up with is a part of a secure banking system and is insured for all deposit types. You would not want to risk your business and lose all profits if your bank failed or closed, so it’s crucial for corporate bank accounts.
Insurance and fund protection are vital to preserve your deposit and give you peace of mind. Depending on the country where you conduct banking, you may be covered by the local government insurance programme.
5. Documentation required
Before applying for a corporate bank account, you must determine which documents are necessary for account opening.
Typically, banks require the legal name of the business, its type, evidence that the business is confirmed, the business’s address, contact information, incorporation documents for the business, and copies of identity documents.
Depending on whether you are a sole proprietor, partnership, or limited liability corporation, you may be requested for additional documentation.
The documentation required to open a corporate account may differ from bank to bank, so you should investigate which bank offers the most straightforward procedures.
Difference between Corporate Account and Business Account
Suitable for medium-sized and large companies
Suitable for small businesses
The board of directors must be established
You can apply if you are an individual or an unregistered business
Benefits & Services
Better interest rates and transaction fees that enhance profits
Varies from bank to bank
Crucial tips to manage a Corporate Account
The following are fundamental guidelines for maintaining any corporate account:
1. Determine an investment strategy
Based on their financial objectives, business owners should develop a proper investment strategy for their corporate accounts. Financial institutions may offer other investment alternatives, but the following two are familiar:
i. Portfolio rebalancing
The bank assigns a financial advisor to handle the investment portfolio of a corporation. This individual will make judgments depending on market fluctuations, company revenue, and company objectives.
ii. Dividend reinvesting
An organisation’s primary method of generating revenue is through this method. Automating this process is also possible. Business owners can choose their favourite investment categories, such as stocks or real estate, but they can also automate this process.
2. Grant access to the appropriate individual
When creating a corporate account, it is essential to consider who should have direct access and when carefully. Using the account for business activities and savings is vital. For instance, the owner must authorise the concerned manager or leader access to the account for the management or leader to purchase new equipment or pay staff salaries.
3. Explore offered interest possibilities
Some financial institutions provide excellent interest rates on certain bank accounts, allowing businesses to earn more while simultaneously saving money. According to experts, directors should investigate the interest options of several banks, consult with one another, and select one.
4. Evaluate the various features supplied
It is advisable to compare the features of different banks’ current accounts to make a better-educated choice. For instance, although some banks provide corporate accounts with mobile banking capabilities, others may impose transaction or balance limits. Therefore, business owners must ensure that their objectives are compatible with the account’s capabilities.
5. Check local ordinances
The tax requirements applicable to a current account may vary based on the nature and location of the business. Typically, businesses engage taxation-savvy legal professionals to verify their full compliance.
Organisations with a board of directors must establish a corporate account to facilitate financial administration. It has various advantages, including increased investment prospects and safety.
Opening a business bank account can give you access to numerous perks.
However, you should carefully consider your personal needs, preferences, and expectations from a bank, as this will assist you in making a more informed decision based on your business type.
1. What does it mean to have a corporate account?
Ans: It refers to a bank account used exclusively for business.
2. Is it mandatory for businesses to establish a corporate account?
Ans: No, it is not required. However, there are numerous benefits for business owners.
3. Is a director required to be an authorised person for a business account?
Ans: A business entity is not required to designate a director as an authorised individual. Anyone linked with a business is eligible to serve as the authorised person. However, a director must provide his PAN and DIN if it is a director.
4. What documentation is necessary to open a corporate account?
Ans: The following documents are necessary for a corporate account:
a. Application form with all required information
b. Articles of Association
c. Memorandum of Association Board Recommendation
d. Declaration of Incorporation
e. Evidence of Address
5. Does a business account influence a person’s credit score?
Ans: As it works on behalf of a corporation, a corporate account has no impact on an individual’s credit score. An Employer Identification Number (EIN) is required to open this bank account.
6. Which five services are the most popular among corporate account holders?
Ans: The essential services included with corporate accounts:
a. Internet banking, money transfers, and telephone banking
b. Insurance and investment funds
c. The use of debit and credit cards
d. International transactions and cash withdrawals from automated teller machines
e. Deposits and safe-deposit boxes