Opening a joint business account can be an efficient way to manage finances. Learn the pros and cons and how to do it right.
First, we’ll cover what a joint business bank account is and what its benefits and risks are. Then we’ll review the qualifications for opening a joint account. Finally, we’ll walk you through how to open a partnership bank account.
What Is a Joint Business Bank Account?
A joint business bank account is an account shared by 2 or more members of a business. This allows all account holders to access the account to deposit funds or withdraw funds. If the account has debit card features, all account holders can be issued debit cards.
A partnership business account can be a checking account or a savings account. If the account has checking features, all account holders can be issued checkbooks.
The features of partnership account arrangements are geared toward businesses that are set up as partnerships or corporations rather than sole proprietorships. All account holders share ownership of the funds and liability for use of those funds.
An alternative to a joint account is an individual account with one or more additional authorized signatories or cardholders. In this case, the individual account owner retains ownership of the account and liability for use of funds, but other authorized individuals can perform transactions.
Advantages of a Joint Bank Account
Setting up a joint bank account offers several advantages:
- All account holders can perform transactions, which can be convenient
- For accounting purposes, a joint account allows all business transactions to be tracked in one place, removing the need to deal with multiple accounts
- If your business is seeking a term loan or other form of business financing, a joint account can be used to provide bank statements as documentation for lenders
- For tax and legal purposes, a joint account clearly distinguishes between individual and business bookkeeping
- A joint account increases the amount of insurance liability coverage for your account from the Federal Deposit Insurance Corporation (FDIC), which provides a designated amount of coverage for each account holder, up to a limit for all combined accounts of account holders at a given financial institution
These benefits can make a joint account an efficient way to manage funds for businesses run by more than one individual.
Risks to Consider Before Opening a Partnership Business Bank Account
While it can be convenient for multiple parties to have access to your business account, this can be a drawback. For example, one partner might not be as good at managing money as another or might have different spending priorities. If one partner is unethical, there can be a risk of embezzlement.
To reduce these risks, the best way to open a joint bank account is to agree upon formal procedures for handling the account and to put these in writing. Having procedures in place for authorizing withdrawals or purchases is particularly important.
Qualifications to Open a Partners Checking Account or Savings Account
Qualifications to open a joint account can vary by financial institution. In general, most institutions will require certain documentation:
- The tax identification numbers of account holders, usually their Social Security number
- The company’s employer identification number
- Your company’s articles of partnership or articles of incorporation
- Certificate of assumed name records, if applicable
- Your business license, if applicable
Making sure you have all documentation ready will make opening an account easier. Check with your financial provider about documentation requirements before opening an account.
How to Open a Bank Account With Your Partner
Setting up a joint bank account can be done in 7 steps:
- Decide whether a joint account is your best option
- Agree upon your account management procedures
- Find a financial institution
- Collect required documentation
- Apply for your account
- Make your initial deposit
- Begin recording transactions
Let’s look at a breakdown of what each step involves.
1. Decide Whether a Joint Account Is Your Best Option
A first step is to decide whether a joint account is better than another option, such as an account managed by one partner or one where a single partner owns the account with other authorized users. One consideration is whether a joint account would benefit your company more than other options.
For instance, would it be more convenient for your company if more than one party has equal access to the account, or would one person end up handling most of your transactions anyway?
Another factor to consider is whether all prospective account holders are prepared to abide by good financial management practices and are capable of doing so. If one partner isn’t good with their spending habits, a joint account may not be your best option.
2. Agree Upon Your Account Management Procedures
If you’ve weighed your options and decided a joint account is the best way to go, it’s a best practice to agree on your account management procedures before opening an account. One item to consider is whether a partner can decide to make purchases on their own or whether purchases need to be authorized through a formal purchasing procedure.
Another important item is how ownership of the account will be handled if one partner leaves the company or dies. Joint accounts normally have a provision called right of survivorship, which transfers ownership of the account to the remaining account holders if one dies. Some accounts have the option of adding a beneficiary in the event all account holders die. Check with your financial provider and attorney to make sure you’re clear on how your account agreement will handle this type of issue.
3. Find a Financial Institution
The next step is to find a financial provider to open an account with. When choosing providers, consider factors such as:
- What types of joint accounts it offers, such as checking and savings
- Minimum deposit requirements for opening an account
- Transaction amount and frequency limits
- Fees
- Interest, if applicable
- Digital account management tools
- Other financial services provided with the account
- Customer service
Use provider websites and sales literature as well as online reviews to help you evaluate prospective financial institutions.
4. Collect Required Documentation
As discussed above, each financial provider will have its own documentation requirements. Checking what your provider requires and assembling your documentation ahead of time will make opening your account easier.
5. Apply for Your Account
The next step is to apply to open your account. At many banks, you can initiate the process online, but you have to visit a local branch to complete your application. Some providers allow you to complete the entire application process online.
6. Make Your Initial Deposit
To open your account, you’ll need to make an initial deposit. Your provider may have a minimum deposit requirement. However, depending on what you plan to do with your account and how soon you plan to begin making transactions, you may need to deposit more than the minimum. Consider how much you need for your initial deposit, and budget this into your financial planning.
7. Begin Recording Transactions
To start your account management off on the right foot, you should record your initial deposit immediately and begin a practice of recording all transactions. Talk with your accounting professional about what procedures you should follow for recording transactions. For best results, develop procedures and use tools which enable you to automate the process of updating your books.
Is a Business Partner Bank Account Right for You?
A joint business account allows multiple representatives of a business to access the account in order to perform transactions such as making deposits and withdrawals, writing checks and making debit card purchases.
This can streamline account management for operational, bookkeeping, tax and legal efficiency. However, it also opens up the risk of one partner mismanaging funds. A best practice to reduce this risk is to create and document formal procedures for handling the account.
The process of opening a partnership account starts with deciding whether joint funds management is the best option for your business. If it is, the next step is to agree on account management procedures, preferably in writing, and seek a suitable financial institution. You’ll need to provide your institution’s required documentation to open an account and make your initial deposit. Record your first deposit to start your bookkeeping off on the right foot.
