What Is a Corporate Account: How it Works, Benefits & Tips

As a business owner, setting up a separate bank account for your business must feature on top of your to-do list. Even though you may have a personal account, using it to care for your business finances can be a nightmare.

Corporate accounts are for handling finances, receiving customer payments, and paying employees and suppliers. Apart from ensuring compliance with legal and accounting principles, a corporate bank account makes your business operations appear more professional and offers financial protection.

This guide covers everything you need to know about the importance of having dedicated company accounts.

What is a Corporate Account?

A corporate or company account refers to a bank account that's opened in the name of a company. The account can receive business income and facilitate various business transactions. Companies with a board of directors should open a corporate account for convenient financial management.

Most leading banks and financial institutions across the globe support company accounts.

Opening a corporate account may be mandatory for businesses depending on the laws and regulations of the country where you conduct business. Bank account opening may take some time, but in any case, opening company accounts for efficient management of business finances is highly recommended.

A word of caution — opening and operating company accounts shouldn't be confused with corporate accounting. Corporate accounting is a specialized branch of accounting that deals with preparing a company's financial accounts and cash flow statements.

How Does a Corporate Account Work?

A corporate bank account works in the same manner as any regular bank account.

You can use it to park any funds from your business and pay for various business expenses. You can also use the account to carry out online banking and business transactions.

Banks also issue checkbooks and debit cards to allow withdrawal from corporate bank accounts.

Is a Business Bank Account Different From a Company Account?

The term ‘business account' is often used interchangeably with a corporate account.

Even though they may sound the same, there are a few differences between business accounts and company accounts.

A corporate account is ideal for companies that are medium-sized to larger ones, while a business bank account makes it more suitable for smaller businesses. Further, a business account is more inclusive and accessible, whereas a corporate account is tailored specifically for incorporated companies.

Who Can Open Corporate Accounts?

Any business entity is free to open a business account. It includes corporations, partnerships, and sole proprietorship businesses, and limited liability companies. The criteria and documents needed to open a corporate account vary based on the type of business structure.

However, only a corporation incorporated under the law can open a company account. Account opening should be backed by a corporate resolution passed by the company's board of directors. Thus, opening a business bank account is a bit easier.

Independence of Operations

Since corporate bank accounts are more formal, they can only be operated by a list of authorized signatories. The corporation holding the account can appoint the signatories by passing relevant board resolutions.

On the other hand, a business account usually operates as the personal bank account of the business owner though the account may be opened in the name of the business. The business owner can access the account directly without appointing other authorized signatories.

Liability to Creditors

Since a company is recognized as a legal person, corporate bank accounts are not considered personal assets of the shareholders. As a result, only company creditors can attach them. The accounts cannot be used to meet unpaid personal debt obligations of any individual shareholder.

In contrast, a regular business account is considered a personal asset of the business owner, and personal creditors of the owner are free to attach them.

What are the Benefits of Having a Company Account?

The key advantages of maintaining a corporate bank account are as follows:

Lends Credibility to Your Business

A proper company bank account signals to your investors, customers, and vendors that you are a legitimate business. Customers feel more confident in a business with a corporate account. Also, vendors and suppliers tend to give better deals to business owners who have a corporate account.

Promotes Financial Management

Corporate accounts make it extremely convenient to track your business expenses and keep the finances separate. You can provide detailed reports and bank statements to the proprietors if you open a corporate account, thus offering clearer insight into your company's financial position.

Helps You Avoid Personal Liability

Separating business banking from your personal finances ensures you do not incur any personal liability for debts in your company's name. In simpler terms, the entire company is accountable for the funds if your company has a corporate account.

Fewer Tax Reporting Issues

Maintaining a separate bank account for your business allows you to file accurate tax returns, as there are no overlaps between business income and personal income.

Even more so, your company and personal financial details are separated when sharing bank statements with a third party or authority, thanks to having a corporate account.

Better Personal Liability Protection

As a corporate account holder, you won't be held personally liable for any profit loss if your business fails.

A personal bank account doesn't offer protection similar to a corporate account.

Boost the Company's Credit Rating

Without a corporate bank account, you need to rely on your individual credit score when you apply for any loans. Meanwhile, a corporate account can boost a business's credit rating and make it easier for the company to obtain financial assistance.

What are the Differences Between Corporate Bank Accounts and Personal Bank Accounts?

Here are the critical differences between corporate accounts and personal accounts:

Signatories

A personal account can only have one or a maximum of two signatories, as the account is meant for personal use.

Company accounts can have several signatories.

Fees

The fees for opening and managing company accounts are higher when compared to personal accounts or business bank accounts. But, you might not have to pay a service fee if you meet the bank's minimum balance requirements for your corporate account.

End-Use

A company account is meant for paying business expenses and receiving business income.

A personal account is for paying personal expenses and personal parking funds.

Liability

A corporate bank account protects business owners from incurring any personal liability for company debts.

A personal account doesn't offer any protection to the account holder. If the account holder is declared insolvent, creditors can attach the personal account to meet unpaid obligations.

What Documents Do You Need to Open Company Accounts?

As part of corporate account opening formalities, you must submit several documents to complete a KYC check.

While the exact checklist of documents varies depending on the banks and the country they are located in, here's what you can expect when opening a corporate account:

• Incorporation documents of the business, such as the certificate of incorporation, business registration certificate, and articles of association
• Proof of business, such as financial statements or business plan
• Proof of business address
• A copy of the board resolution of the company authorizing the opening of the bank account
• Identity proof documents, such as a passport or any identity card issued by the respective government of principal shareholders or beneficial owners of the company
• Proof of residence of the principal shareholders or beneficial owners
• List of signatories authorized to operate the business bank account

Always speak to the bank about the documents required to set up a new corporate account. Failure to submit relevant documents can result in the bank rejecting your account opening application.

Top Tips for Managing Company Accounts

Operating corporate bank accounts throws up unique challenges you may not encounter otherwise during banking operations. This is especially true if you are only used to operating a personal bank account.

Here are a few things company account holders should keep in mind for managing their accounts without glitches:

Be Aware of Introductory Offers

Most banks offer a range of benefits to incentivize customers to open company accounts. These banking services include higher interest rates, cash bonuses for preliminary deposits, and waiving maintenance fees for the first year, etc. Free or low-cost electronic transactions and higher interest rates on business revenues will be an advantage.

To make an informed choice, ask each bank about their introductory offers to a corporate account.

Consider Having an Investment Strategy

Consider having an investment strategy for your corporate account. Different financial institutions provide various investment options based on your goals. Banks commonly offer choices like:

1. Dividend Reinvesting: Automatically reinvests dividends or additional funds to boost company earnings. You can make selections, such as real estate or stocks.
2. Portfolio Rebalancing: The bank's adviser regularly reviews your company's investment portfolio, making personalized decisions considering market changes, business earnings, and goals.

Check Whether Your Deposits are Insured

Before you open a corporate account, check that the bank is secure and insured for all deposit types. Ideally, you should open corporate accounts with financial institutions with a secure banking system with insurance and fund protection. If the bank shuts down its business, you don't risk losing all your hard-earned money.

In some countries, deposit insurance is mandatory for banks and financial institutions. For example, all licensed banks in Hong Kong offer insurance protection of up to HKD 500,000 per depositor.

Double-check the Fees Payable

There are various fees associated with company accounts, including monthly service fees and maintenance fees. It is also common for banks to charge an account opening fee or ask for a deposit in lieu.

Additionally, you may also need to pay transaction fees for ATM cash withdrawals and termination fees for shutting down your corporate bank account.

Banks may sometimes agree to waive the fees provided the account holder fulfills additional conditions, such as the bank's minimum balance requirements.

Ask About Additional Services and Benefits Associated With Corporate Accounts

As a corporate bank account holder, you may receive additional benefits from your bank, such as access to an overdraft facility, pre-approved business loans up to a certain amount, mobile cheque deposit, and virtual assistance.

Depending on the nature of your business, you may be better off choosing a bank that offers more services and features to support your business banking needs.

Why is it Critical for Businesses to Have Company Accounts? 

Regardless of the size or nature of your business, you should open a company account if you need a hassle-free way of receiving, managing, and remitting company funds.

Always consider the requirements of your business before you go ahead and open a business bank account.

If you want to incorporate a company in Hong Kong and need assistance with setting up your company account, get in touch with Air Corporate. Our experts can help you open a corporate account or other business accounts and suggest alternatives to traditional banks depending on the nature of your business.