Separating your personal and corporate funds is especially important as a sole owner. Establishing a separate bank account for your single proprietorship has several legal and financial advantages, including monitoring company costs, streamlining tax preparation, and maintaining a professional reputation. We will lead you through the process of creating a bank account for your sole proprietorship company.
In this blog, we describe the “Essential Steps to Establish a Bank Account for Your Sole Proprietorship Business” for the benefit of interested readers.
Understanding Sole Proprietorship
The best enterprise structure—a sole proprietorship—is one in which one person owns and runs the corporation. As the sole proprietor, you individually answer for all sides of the agency, such as its belongings, money owed, and profits. Because of its simplicity and adaptability, small organization proprietors and freelancers especially like this structure.
What Justifies a Business Account for a Sole Proprietor?
A sole proprietorship is a practice of conducting business only under one’s own name. Ownerships fall under the category of “unregistered businesses” because they are not registered as separate legal entities with the central government. Proprietorships are appropriate for very small firms in the unorganized sector, which would not have an annual revenue of more than Rs. 10 lakhs.
Frequently, the sole proprietor would run a firm under a different name (for example, Chennai Metal Trading, Kumar Groceries, etc.). Most entrepreneurs choose a business name for their sole proprietorship that is widely used and does not violate any well-known trademarks because sole proprietorship business names are not rigorously checked or controlled. Finally, to provide legitimacy to the sole proprietorship and collect payments in the name of the sole proprietorship business, a bank account must be established.
Benefits of a Bank Account for a Sole Proprietorship
You don’t need to open a sole proprietorship bank account in order to do business as a sole proprietor. It is legal for business owners to use their personal bank accounts to receive payments and make purchases.
Nonetheless, there are certain advantages to having your personal and business expenses in separate bank accounts.
- Your accounting will be simpler: You can effectively track cash flow by using a different debit card for your business. Knowing exactly what is coming in and going out is essential for tracking your small business’s financial goals and staying true to your business plan. You won’t have to put in much effort to separate your personal expenses before performing your accounting if your accounts are already segregated.
- Tax time will go more smoothly: Taxes are already a pain, but maintaining a separate sole proprietorship bank account can make things easier. Filing your taxes will be much easier because you won’t have to sort through months or a year’s worth of expenses to figure out which were for personal use and which were for small enterprises. Many business checking accounts can be linked to accounting software, which will automatically combine your transactions for you. This only works if you keep your personal and business expenses separate.
- You’re better safeguarded: You can further safeguard yourself by keeping your personal and work expenses separate. In the event that the Internal Revenue Service (IRS) audits your business at any point, you must be prepared to provide a paper trail for every financial transaction your business has ever made. If you are able to see exactly how much money you have spent on your business without having to separate out your personal spending, this process will go much more swiftly.
- You’ll have access to financing for your business: If you want to apply for a business loan or other type of funding in the future, you’ll undoubtedly need a business checking account. Before evaluating you for funding, the majority of lenders demand that you open a business checking account so they can assess your company’s cash flow. Lenders frequently need to verify that your business has the resources necessary to repay the loan.
- Your company will seem more trustworthy: If you have a business bank account, your clients who make payments will see your business as more reliable. Many people are cautious when sending money to a personal account. Consider making a purchase and writing a check to Jane Johnson; contrast that with making a payment to Johnson Enterprises. The latter instils a sense of security and increased validity in the customer.
What kind of bank account is required for a sole proprietorship?
Any kind of company checking account is allowed for sole owners. The following qualities make for a great deposit account for single owners:
- Minimal monthly fees: You shouldn’t lose money to bank account fees. Consider maintenance fees, ATM fees, transaction fees, and foreign transaction fees when choosing a bank account for a sole business.
- Low minimum balance requirement: Be sure that your account balance is not more than you are able to keep. Many small company bank accounts do not have a minimum balance requirement.
- Online banking: Sole proprietors who run their businesses need quick and easy access to their bank accounts. Examine the ratings of the mobile app and the online banking system.
- Ability to link to other accounts: Look into the numerous accounts the bank offers, such as savings accounts or lines of credit, if you think you might want to diversify your banking portfolio in the future. Your checking account ought to be able to be connected to these.
- Can take card payments: Your business bank account, which offers merchant services, can accept debit or credit card payments. This system can simplify your bookkeeping while giving your customers easy payment options.
- Annual percentage yield (APY): Certain checking accounts allow clients to earn interest on their balances even if the rates are frequently lower than those of savings accounts when comparing the interest rates on different accounts.
Procedures for Opening a Bank Account for a Sole Proprietorship
You must follow a few procedures in order to open a business bank account for a sole proprietorship.
1) Register your business
The first step in obtaining a business bank account is to register your sole proprietorship firm with the relevant federal, state, and local authorities (as needed). You might not need to register a single proprietor, depending on your state.
2) Choose an appropriate company checking account
There are many different options for business checking accounts, so you’ll need to compare them before deciding which is best for your organization.
3) Gather your documents
You must be able to verify both your identification and the integrity of your business before opening a business checking account. This is a list of all the documents you’ll need before filing an application to open a business bank account.
4) Apply for the account
Many corporate bank accounts are open to Internet applications. If you’d prefer to submit your application in person, find a bank with nearby branch offices.
Checklist for Opening a Sole Proprietorship Bank Account
More than 50% of legal entities in India are sole proprietorship firms. There is no separate registration certification for a sole proprietorship firm like there is for a private limited company, LLP, OPC, or partnership firm because the sole proprietorship firm’s primary goal is to create a current bank account. Learn about the checklist that must be completed in order to create a current account in any bank as a sole proprietorship firm in accordance with RBI guidelines.
The following two categories make up the checklist:
(a) Entity Proof and
(b) Personal Proof
(a) Entity Proof Checklist
You must have at least one document on the sole proprietorship firm name as entity proof, and the requirements are as follows: Everyone needs one or two papers.
| Entity Proof Checklist | |
| 1. Certificate of Service Tax Registration (ST-2) | |
| 2. Registration for VAT, CST, or a TIN number | |
| 3. Tax registration for professionals | |
| 4. A license, such as a certification of practice from a chartered accountant, a company secretary, a CWA, etc. | |
| 5. Confirmation of registration under any particular governmental statute or act | |
| 6. A state- or federally-issued valid business license or certification of registration | |
| 7. The central or state government’s certification of permission in the SEZ zone, the Software Technology Park, export-oriented units, the Export Processing Zone, etc. | |
| 8. Registered Provident Fund Certificate with the PF Commissioner | |
| 9. Certificate of registration from the MSME department | |
| 10. The IEC code (import-export code) | |
| 11. Current income tax filings, including income calculations, are filed under the sole proprietorship firm’s name. | |
| 12. The most recent VAT, CST, or ST returns | |
| 13. Letter of TAN allocation to the legal entity | |
| 14. A copy of the most recent property tax payment or utility bill |
(b) Personal ID and address proof
Together with the documents listed below for the legal entity, you also need to provide verification of your personal identification and address.
- PAN card copy of the proprietor
- Address verification options include copies of an Aadhar card, a voter ID, a passport, or a driver’s license.
- Utility bill copies, a bank statement from a personal savings account, etc.
Documents Required for Opening a Proprietorship Bank Account
The Reserve Bank of India (RBI) has established Know Your Customer (KYC) guidelines for creating current accounts in the name of sole proprietorships, and all banks have a mechanism in place to do so. The RBI has extensively suggested the following be applied by banks as KYC criteria for the opening of a single proprietorship current account:
- Proof of the name, address, and activity of the business: Examples include the registration certificate (in the case of a registered business), the certificate or license issued by municipal authorities under the Shop and Establishment Act, sales and income tax returns, the GST certificate, the certificate or registration document issued by the sales tax or professional tax authorities, and the license issued by the registering authority, such as the Certificate of Practicing Law.
- Secondary Proof: Any registration or licensing document issued in the name of the proprietary firm by the central government or state government authority or department. The IEC provided to the proprietary firm by the office of the DGFT may also be accepted by NBFCs and RNBCs as identification when opening an account.
- The full income tax return (not simply the acknowledgement) filed under the single proprietor’s name, officially verified and accepted by the tax authorities, shows the business’s income.
- Utility bills in the name of the proprietary firm, including those for water, electricity, and landlines
For the establishment of a sole proprietorship current account, any two of the aforementioned documents would be adequate. These documents must be in the proprietorship’s name, according to RBI KYC regulations.
Several banks have implemented procedures and a list of documents needed to open a current account in the name of a sole proprietorship firm based on the aforementioned RBI guidelines. The list of documentation needed by a bank to open a proprietorship bank account is as follows:
First Sole Proprietorship Proof (any one of the following documents)
- Labour permit or certificate
- Certificate of professional tax registration
- The Excise & Customs Department issued a registration certificate
- A TAN certificate, a GST registration certificate, a TIN certificate, or a sales tax registration certificate
- Certificate in the name of the entity indicating the designated address issued by STP, EHTP, DTA, and EPZ
- PAN card and IEC certificate (if PAN is quoted on the IEC certificate)
- Trade license in the organization’s name
- The entrepreneur’s memorandum number appears on the District Industries Center (DIC)/Small Scale Industries (SSI) Certificate—Acknowledgment Part II issued by the DIC/SSI and properly endorsed by the issuing authority and signed.
- The Securities Exchange Board of India (SEBI) registration certificate bearing the entity’s name
Second Sole Proprietorship Proof (any one of the following documents)
- Employee Provident Fund Organization firm registration
- The Employee State Insurance Corporation registration of the business
- Complete sales tax return in the name of the firm, fully acknowledged. Note: The accepting authority must properly recognize the portion of the sales tax return that displays the firm’s name.
- The most recent income or wealth tax assessment order in the business’s name
- The most recent electricity bill is no older than three months.
- The most recent telephone bill from the telecom provider, not older than three months
- A certificate from a municipal corporation or local self-government body attesting to the business’s address
Sole proprietor identity proof (any one of the following)
- PAN card with the owner’s name on it (mandatory)
- Passport
- Voter identity card
- Driving license
- The Aadhaar card was issued by the Unique Identification Authority of India (UIDAI).
- State or federal government-issued senior citizen cards
- Weapons license
Sole proprietor address proof (any one of the following)
- Passport
- Voter identity card
- Driving license
- Aadhaar card issued by the UIDAI
- Utility bills (telephone bill, electricity bill) that are no older than three months
- Water tax bills and receipts that are no older than six months
- The most recent three months’ worth of bank statements from a scheduled commercial bank, along with an account opening check, a bank passbook, or an original letter from an established banker
How could Kanakkupillai be able to assist you in setting up a bank account for a sole proprietorship?
If you’d like, Kanakkupillai can assist you in opening a bank account for a sole proprietorship. The KYC requirements in this regard are as follows:
- A permit or certificate granted by municipal authorities in accordance with the Shop and Establishment Act
- Income and sales tax returns
- Certificate for CST/VAT
- A certificate or registration form issued by the authorities in charge of sales tax, service tax, or professional tax
- Registration or licensing document issued in the name of the proprietary concern by the central government or state government authority or department
- The DGFT office issued the private firm with an IEC as identification while opening a bank account.
- Licenses are issued by the registering body, such as Certificates of Practice from the Indian Medical Council, Food and Drug Control Agencies, Institute of Cost Accountants of India, Institute of Corporate Secretaries of India, etc.
Contact Kanakkupillai to register your business for a reasonable fee!
Email: support@www.kanakkupillai.com; Phone: +91 7305 345 345 Free consultation for all states in India. Please contact Kanakkupillai regarding this without delay, via phone or email. They will be delighted to assist you!
Tips for Managing Your Business Account
These guidelines will help you to guarantee the seamless running of the finances of your sole proprietorship:
- Separate your personal and commercial costs. Use your corporate account only for transactions connected to your company.
- Watch your account often. Go over your account statements and transactions to guarantee the correctness and find any illegal behaviour.
- Keep thorough records of your company’s profits and costs. This will help you monitor your sole proprietorship’s financial situation and streamline tax preparation.
- Consider arranging automated payments for regular company costs, including utilities, rent, or subscriptions.
Conclusion
Establishing a professional and orderly company requires opening a separate bank account only for your sole proprietorship. Following the advice in this blog and using best practices for account management will help you to be on your way to keeping a clean distinction between your personal and corporate accounts. Recall that a well-run company bank account may save you downstream time, money, and hassles.
