Whether a business owner should use his personal bank account or open a corporate bank account is one of the vital concerns when starting one’s own business. There is no legal obligation for a company to create a corporate bank account, although doing so could be beneficial both financially and administratively. This article will explain to you why you should consider using a separate corporate bank account for your business.
Is it obligatory to use a corporate bank account for my business?
The short answer is no. As a company, you are not legally obligated to create a corporate bank account. That means you may use your personal bank account for your business. However, in some cases, a personal bank account may only be used for personal funds and transactions.
What are the benefits of using a corporate bank account?
Although using a separate corporate bank account is not mandatory, it can be beneficial for effective finance management and business development in many ways.
- Accurate bookkeeping & clear assessment of business performance
When the number of business transactions exceeds that of personal transactions, it may become confusing to understand your monthly business costs and revenues. Having a corporate business account that is separate from your personal account would make it easier to assess how well your business is performing, hence providing greater potential for growth.
- Simplified tax preparation
If business and personal transactions are mixed together in a single bank account, preparing for taxation would be troublesome, time-consuming and complex. There are many differences between personal and corporate taxation, for instance, the tax rate. Insufficient accuracy and clarity may expose you to risks of penalties by the Inland Revenue Department. In case of audit, there will be a clear distinction between personal and business expenses if the bank accounts are separate; courts might hold you personally liable and not see you as a separate entity from your business.
- Business credibility & professionalism
The image of your business plays a significant role in attracting clients and investors. Clients are more willing to trust your business if their payments are going into an account registered under the company’s name. A corporate bank account demonstrates dedication, confidence and professionalism in your business.
Key Takeaways
- Although not legally obliged, using a separate corporate bank account is beneficial for finance management, fulfilment of tax obligations and long-term business development.