Is an LLC Required to Have a Separate Bank Account?

By Tom Speranza, J.D.

Is an LLC Required to Have a Separate Bank Account?

By Tom Speranza, J.D.

If you are starting a business that will operate as a limited liability company (LLC), you may be wondering whether you are legally required to open and maintain a separate bank account for the LLC. As a technical legal matter, the owners of an LLC are not required by state LLC statutes or federal tax law to have a separate bank account for the business, but there are several reasons lawyers and accountants strongly recommend having a dedicated account for an LLC.

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Why should an LLC have a separate bank account?

There are three major reasons to open a business bank account for your LLC:

Liability Protection

A separate bank account helps maintain the legal distinction between the LLC and its owners—known as members under LLC laws. Like a corporation, an LLC confers limited liability on its members, meaning that creditors of the company, such as customers, landlords, and suppliers, can only look to the assets of the LLC for payment. As long as the members separate their personal legal and financial matters from the LLC's business, the personal assets of the members are not reachable by people and entities with legal claims against the LLC.

However, if the owners of an LLC commingle their personal financial transactions with the LLC's by using the same bank account—for example, by writing checks for personal expenses from the account or depositing non-LLC income into the account—a court may "pierce the corporate veil" or conclude that the LLC is an "alter ego" of the members. This would allow the LLC's creditors to seek remedies against the members' personal assets.

Taxes

Most LLCs do not pay taxes as a separate entity. Instead, they allocate their income, losses, and deductions to the members who then include the amounts on their individual tax returns. But the LLC is still a distinct legal person and the U.S. Internal Revenue Service (IRS) requires taxpayers to report an LLC's activities on specific forms.

A single-member LLC is a "disregarded entity" for tax purposes, and the member reports their business income, loss, and expenses on Profit or Loss From Business (Schedule C [Form 1040]). An LLC with two or more members files a partnership tax return on U.S. Return of Partnership Income (Form 1065) and reports income or loss allocated to the members using Partner's Share of Income, Deductions, Credits, etc. (Schedule K-1 [Form 1065]).

Keep in mind that most LLCs also need to file state and local tax returns. Without a separate bank account for the LLC, completing and filing the required tax forms is more difficult, as business income and expenses must be located among the personal deposits and withdrawals.

A separate business bank account for the LLC saves the members' time by simplifying recordkeeping and tax compliance and ensures that a single ledger includes all income and expense entries.

Business Image

A separate bank account for your LLC helps your business seem more credible and professional. If you are issuing paper checks to suppliers, landlords, employees, and contractors, those payments make a better impression with the company's name printed on them rather than the names of the founders. Even if the LLC processes most of its payments electronically, the line items that appear in the bank accounts of your suppliers, landlords, employees, and contractors project a better image if they include the name of the LLC.

How do you open an LLC bank account?

To open a business checking account for your LLC, a bank requires copies of documents that confirm the LLC's existence and the authority of the members, managers, or officers who will sign checks and direct payments.

Once you decide to run your business as an LLC, it makes sense to establish a single bank account for all of the company's transactions. Not only does it make it easier to track business-related income and expenses, it also improves your company's image and helps protect you and your fellow owners from unwanted personal liability arising from the LLC's operations.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.