Forming a legal entity (part 6): Open a checking account

After the long wait to get back my incorporation papers, the first thing I did was to open a checking account.  The most important reason this was first was that I’d been told many times that it’s crucial to keep the company’s finances completely separate from my personal finances.  This is one of the cornerstones of making the company a separate legal entity, and is crucial for the limited liability of an S-Corp to hold up in court.

A second reason to do this first was that, as a founder, I needed to “buy” the company, and the company needed a place to put the cash.  To make a long story short, when you create a company, you file with the state to create a new, completely independent, legal entity.  This entity is created with some number of shares of stock which it owns.  As the founder, and in order to become the owner, you must buy those shares from the company.  This, of course, is what gives the company its initial operating cash, and the company needs a place to park those funds (legal entities not having mattresses).

The final reason I started by creating a bank account is the obvious one: they’re pretty handy for paying bills.  I knew I wanted to buy some stuff for the business (e.g., a laptop, some office supplies, etc.), and I knew I wanted to sign up for various services (e.g., email, web hosting, etc.).  To do so, I needed a debit/credit card which would be accepted for these various online and offline transactions.

How to choose?

It turns out that business accounts, unlike many personal accounts, cost more, and come with many fewer benefits. After doing a bunch of research, I found banks generally varied by:

  • Quality of online banking access
  • Amount of annual fees
  • Minimum balance required (particularly to waive the annual fees)
  • Convenient branch locations
  • Extra services available (e.g., notary, support during acquisition, etc)

I think all the banks I looked at had an annual fee which could be waived if you kept enough money in your account (the particular amounts, of course, varied).  The banks varied considerably in the level of online banking support (from extensive to none) based mostly on the size of the bank (i.e. the local credit unions generally don’t have great websites, whereas national banks generally do).

I went with Bank of America (BoA), but there were a bunch of others which were close seconds (Comerica and Sillicon Valley Bank, in particular).  I liked BoA because its minimum balance to avoid fees was relatively low, it has good web banking (though online bill pay costs extra), and there’s a convenient branch location near my office.

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