February 13, 2023

A business entity outlines the ownership structure of a business, and it’s a key consideration when starting your new venture. Choosing the right one for you is a matter of research, and with the ever-evolving guidance on what’s needed to open a business account, we’ve outlined some of the most common account entity types and what you need to get started.

Note, this is not a comprehensive list nor are we advocating for any one entity type. Do your research to find the entity type that best fits your needs.

Sole Proprietor or Trade Name

A sole proprietor or trade name, more commonly known as a DBA (doing business as), is owned and operated by an individual. Though an individual owns the operations, the trade name acts as a marketing or advertising brand.

Ex: John Doe is the owner and operator of ABC Lawn Service. So, he will likely receive payment for services under ABC Lawn Service or himself.

By registering a sole proprietorship or trade name with the appropriate government agency (most commonly the Secretary of State), you can deposit checks or receive electronic transfers into a business account under your trade name.  

Limited Liability Company

A Limited Liability Company (LLC) is a corporate structure that protects its business owners from being personally pursued for repayment of the company’s debts or liabilities. If your company were in financial trouble, the LLC helps protect personal assets like your home, vehicle, or 401K.

By registering an LLC with the appropriate government agency (most commonly the Secretary of State), you can deposit checks or receive electronic transfers into a business account under your business name. 

Single Member Limited Liability Company

A Single Member LLC has a similar structure to the sole proprietorship or trade name account type and is treated equally for IRS/tax purposes. The owner now has the same advantages as owning an LLC with limited liability coverage, state registration, and added credibility in the eyes of your customers.

By registering a Single Member LLC with the appropriate government agency (most commonly the Secretary of State), you can deposit checks or receive electronic transfers into a business account under your business name. 

General Partnership

A general partnership is an association of two or more persons or businesses as co-owners for profit. Here are a few advantages and also a few disadvantages to having this type of account.

Advantages:

  • Few legal requirements for formation
  • Ability to pool financial and managerial resources of partners
  • Taxes are at the individual partner’s tax rate, which may be lower than the corporate rate
  • Profits and losses are reported annually on federal and state partnership forms, although the partnership pays no taxes
  • Profits and losses are divided among partners

Disadvantages:

  • General partners have unlimited personal liability
  • Personal assets of one or all of the partners may be attached to cover liabilities regardless of which partner incurred the debt
  • The partnership can dissolve with the loss of a partner, depending on the partnership agreement

By registering a General Partnership with the appropriate government agency (most commonly the Secretary of State), you can deposit checks or receive electronic transfers into a business account under your business name. 

Non-Profit Corporation

A Non-Profit Corporation is a business organization that serves a public purpose and isn’t designed to make a profit. Some nonprofits are tax exempt under section 501©(3), 504©(4), or 501©(10) of the Internal Revenue Code.

By registering a Non-Profit Corporation with the appropriate government agency (most commonly the Secretary of State), you can deposit checks or receive electronic transfers into a business account under your business name. 

If this business type fits your needs, please consult a tax advisor or visit irs.gov for more information.

Depending on your type of profession, there is some information you’ll need to gather before opening your account.

What Do You Need to Open a Business Account with FirstBank?

While we have yet to cover every type of commercial account, your business needs may fall into one of these solutions. If you have more questions related to business loans or how to start a business, check out our Business Success page at efirstbankblog.com.

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