Opening a Bank Account in the USA: An Overview
The United States is the largest and essential economy in the world, which drives 20% of global economic output. Despite the impact of the global pandemic, the US is still larger economically than its nearest economic rival, China, and still has the highest GDP per person of any large country.
Many international businesses need to open U.S. business bank accounts to conveniently do business with their US clients and to avoid the hassle of foreign currency and exchange rates. Generally, it is strongly recommended that a business entity maintains a separate bank account as it helps them in keeping the entity in compliance with IRS record-keeping requirements and will provide a better way to manage the company's cash flow.
Advantages of Opening a Bank Account in the USA
Opening a bank account in the USA can be quite beneficial for the entrepreneur due to the following advantages associated with the same.
Limits the Personal Liability
At the time of opening a business, many business owners opt for setting up a corporation or a Limited Liability Company (LLC) to limit their personal liability in the business. Having a LLC or a corporation separates the business and personal assets of the entrepreneur. But to keep this liability protection intact, the entrepreneur must follow certain rules. Otherwise, he could be at risk of “piercing the corporate veil"—a situation where he could be personally liable for his business debts.
One rule which must be followed by the entrepreneur in keeping the corporate veil intact is to keep the business and personal finances separate. Having a dedicated business bank account can help with the same.
Better Organisation of Business Records
Compiling the business and personal money in one checking account may seem convenient, but it can put the entrepreneur in a bad spot at tax time. There is a challenge of accurate bookkeeping when sorting through hundreds of transactions in the personal bank just for finding one business expense. It is not just time-consuming, but there is an important business tax deductions, which can end up costing a lot of money at the time of tax filing at the end of the year. Opening a business account that’s separate from the personal account will simplify things for the entrepreneur as well as his tax professional in the future.
Establishes Credibility with the Clients
When establishing trust with present and future clients, it’s important to treat the business as a priority. In case the entrepreneur has a small business, it can look unprofessional to pay the contractors with a personal cheque or have the clients write a cheque to the entrepreneur in his individual account, Therefore, having a dedicated business banking account that’s separate from personal accounts portrays serious professionalism, thereby establishing credibility among clients.
Monitoring the Progress of the Business
One of the best things which can be done for establishing a healthy business is to monitor its growth and look for opportunities. Monitoring the business financials plays a significant role in the same. Keeping the business account separate from the personal bank account helps in keeping a check on the financial records regularly, which facilitates better planning for improvement and growth.
Key Consideration to Choose the Most Suitable Bank
One of the major issues faced by entrepreneurs while opening a bank account in the USA is making the choice of the most suitable bank for the business. The below-mentioned parameters can help the entrepreneur in making the right selection
- The entrepreneur’s expected volume of banking transactions
- Some of the initial capital intended to be deposited by the entrepreneur with the bank
- Other additional financial services the business may need
- The minimum account balance requirements of the account by the bank
- The type of currencies the entrepreneur be transacting in
- Ease of making the transaction
Documents Required for Opening a Bank Account in the USA
The documents required for opening a corporate bank account in the USA are given below -
- Photograph of the director opening the account
- Residential address proof for the named director
- AOA /Organization. The entrepreneur must prove that his business is properly registered. The accepted documents will vary according to the type of business entity he runs
- EIN (Employer Identification Number) confirmation letter. This is required for tax reporting purposes.
- Proof of business address. Some banks will require the entrepreneur to provide proof that the business address is in the same geographical location and state as the bank branch. Others are more accommodating.
- General questions about business purpose (and its source of revenue )
Procedure for Opening a Bank Account in the USA
The below-mentioned procedure must be followed by the entrepreneur for opening a bank account in the USA.
Selecting a bank
Due to there being numerous banks in the USA, the entrepreneur must conduct thorough research for finding the right one for his business. The banks may vary based on their speciality in certain types of clients or offer particular services. It may be useful to contact several banks to compare services and costs and also consider the above-mentioned aspects for selecting the right bank.
Gathering the Necessary Documents
The documents required to open a bank account in the USA may depend on the banks. However, the entrepreneur must arrange the basic documents discussed above.
Filing out an Application to open an Account
It is important for the entrepreneur to fill out the application in the prescribed manner, and ensuring to provide all the required information, and carefully check the terms and conditions.
Depositing the Funds
The banks in the USA often require a minimum management deposit for opening a bank account for foreign companies. The amount of this deposit can be varied between banks and the risk of the business activity. The entrepreneur must ensure to check the deposit requirements with the chosen bank before depositing funds.
Providing the Required Documents
For opening a bank account in the USA, the entrepreneur must provide documents such as the COI, AOA, personal identification documents, and bank references. The document may differ depending upon the bank, so the entrepreneur must have the knowledge of the requisite documents.
Awaiting Approval from the Bank
Post the submission of all the required documents and deposit the necessary funds. The entrepreneur must wait for the approval of the bank in respect of opening the account. The bank can even ask questions about the company’s activity, the names of the customers, the names of the suppliers, the number of incoming and outgoing transactions, as well as the source of funds.
Accessing the bank account
After obtaining the approval for opening a bank account in the USA, the entrepreneur can access his account online, via a mobile application or in person at the bank, along with being able to make transactions and view his balances and transaction history, followed by performing other routine banking operations.