Corporate bank account opening has become increasingly common nowadays as more and more businesses are incorporated, and alongside their increase in prevalence, even more options have become available for prospective business owners.
This article aims to explain why you should open a corporate bank account, the key considerations that go into opening one, where you should open one and lastly how to open one.
Why open a corporate bank account
There are several reasons to open a corporate bank account as opposed to simply using your personal bank account for business transactions.
Legality
Using Singaporean company law as an example, the Singaporean Company Register, the Accounting and Corporate Regulatory Authority (ACRA) states that each business must have its own corporate bank account so that ACRA can easily and accurately determine if companies have been following the stated regulations.
Separation of expenses
Having a separate corporate bank account for business expenses as opposed to commingling (mixing of personal and business funds) will result in several legal and operational issues, of which three have been listed below.
· Separation of liability. Commingled funds erode the personal liability protection effects of corporations. Business owners can be held personally liable for the debts and obligations of their business if it was deemed by courts that a business account was used for personal expenses or vice versa.
The above action is known as “piercing the corporate veil” and is less likely to occur if business expenses are partitioned out into a separate corporate bank account.
· Easier to track business performance. Separating expenses also makes it easier to track the business performance of the company through its financial standing. A company’s financial position might be affected by personal expenses or injections, and this could lead to a misestimation of the firm’s true ability to generate returns on its assets.
Having a corporate bank account mitigates this, and instead allows firms to accurately determine their own performance and take the appropriate actions required.
· Easier financial and tax reporting. Certain business expenses might be tax-deductible, and having both deductible and non-deductible, personal expenses in the same account will make it hard for accurate and timely tax reporting to be done.
Sometimes, these expenses might even become indistinguishable and cannot be accurately attributed to either personal or business spending, making financial reporting unnecessarily tedious. Such inaccurate tax filings and financial reporting might then lead to heavy fines or penalties from the authorities.
Facilitation of business activities
Corporate bank account opening offers greater access to multicurrency bank accounts which help to facilitate international payments and transactions with customers and suppliers. Such accounts are able to bypass capital controls or foreign transactions tax which increase the hassle or cost of international transactions.
In addition, the ability to hold multiple currencies allows to offer more certainty to your business partners even as the currency exchange rate fluctuates. This prevents you from being held at the mercy of banks, which might offer less competitive exchange rates depending on the economic situation.
Crucially, regardless of the kind of corporate bank account you open, having customers issue payment to a business account as opposed to a personal account accords your business more credibility and a sense of professionalism. In the same vein, this would make it easier for your business to secure financing from banks given that there was a previous relationship.
Key considerations in corporate bank account opening
There are also several key considerations in going about corporate bank account opening.
Eligibility for tax exemption
Certain countries have specific requirements for your business to qualify for tax exemption, which state that your company’s bank account cannot be located in the country of incorporation. Singapore is an example of such a country. On the other hand, countries like Estonia offer significantly more flexibility in choosing which corporate bank account and where to locate your bank account.
Estonia’s tax exemption policies are not tied to the country where the bank account is registered, and they even allow fintech companies to serve as a company’s corporate bank account. Thus, depending on which country your company is incorporated in, you might face additional restrictions on your corporate bank account as well.
Most countries also offer tax exemption on interest income, though it is best to check with the specific bank you are opening your account with to see if you qualify.
Nature of transactions
The nature of business transactions will also affect the kind of corporate bank account that would be most appropriate.
More specific considerations would include
· Volume and value of transactions. This would affect what sort of minimum account balance would be appropriate for your business to still maintain adequate liquidity.
· Currency that transactions would be conducted in. Companies dealing heavily in multiple currencies should consider a multi-currency account.
Requirements
The other key set of considerations lie in the requirements associated with opening a corporate bank account. More importantly, businesses must see how they are best able to satisfy these requirements.
· The need to travel. Certain banks or countries might require the directors of the companies to be physically present for the corporate bank account opening process. Such requirements can pose a hassle to business owners. However, this requirement can sometimes be substituted by video conferencing or by visiting a branch office of the bank in the investor’s home country instead.
· Nationality of directors. Certain banks might also impose additional requirements on the nationality of directors. One example is Japan, where certain banks may require the appointment of a local director as a requirement for corporate bank account approval.
· Minimum balance. The minimum balance to open and maintain your corporate bank account is also something to take into consideration to ensure that your cash flow is not unnecessarily restricted. Bank accounts that have a higher minimum balance tend to reduce the liquidity and flexibility of your company, especially if it is a smaller company that has less cash on hand.
· Other fees. Banks might also impose registration or annual fees to maintain an account with them.
Based on these key considerations, banks can decide not only the kind of corporate bank account they should open, but more importantly where to open it.
Where to open your corporate bank account
This is because each different location will have a different set of requirements, so it is crucial that your business is able to match these different requirements with the key considerations and needs of your company.
Some popular and reputable choices on where to open your corporate bank account include:
· Singapore. Singapore is a well-regulated financial hub that is well connected to the larger global financial markets. There are a wide variety of international banks with branches in Singapore or local banks that are equally reputable. This allows Singapore to offer a wide spectrum of banking services to suit your various needs.
· Hong Kong. The other financial hub of Asia, Hong Kong is equally well-regulated. However this does mean that there are stricter requirements for companies to open bank accounts with banks in Hong Kong, and likewise in Singapore.
· United Arab Emirates. The financial hub of the Middle East, Dubai is equally well-regulated but its strategic location between Europe, Africa and Asia makes it a more suitable option for those who have customers in these areas.
· Switzerland. Switzerland offers some of the best banks in terms of asset privacy and protection, but typically cost more as compared to the other options.
Other options include offshore corporate bank accounts in the “traditional tax havens” which are cheaper and easier to incorporate and maintain but come at the intangible cost of credibility and reputation. Due to a lack of financial reporting requirements, having bank accounts in these countries might lead to further scrutiny and makes it harder for you to do business.
Steps to open a corporate bank account
The corporate bank account opening process roughly has the following steps.
1. Choose account type and jurisdiction. Based on the considerations and factors listed above, you should shortlist a few banks that would best suit your business needs. Sometimes, you might not be able to secure your first choice bank, hence it is important to plan with a few banks in mind.
2. Preparing supporting documents. Most banks would require a resolution from the Board of Directors, copies of relevant company documents including the certifications of incorporation of the company, memorandum and articles of association, and copies of proof of identity and address. Stricter banks might also require that these copies be “certified true”, notarized or brought down physically during the interview.
3. Attending the interview. Depending on the bank, this might be a physical meeting or virtual. Questions will encompass both Know Your Customer types as well as regarding the business plan and activities of the company. This is to help the bank assess the suitability of your company for opening an account.
4. Approval of application. After approval, companies can proceed to register and activate online banking services, as well as make the initial deposit of funds to meet the minimum balance requirements.
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