Understanding the Legal Implications of Maintaining Two Bank Accounts for Your DBA
Starting a business can involve multiple ventures or branches, and it’s not uncommon for entrepreneurs to operate under a Doing Business As (DBA) name for a specific project or aspect of their overall business. One question that often arises in such situations is whether it’s possible to maintain separate bank accounts for each business entity, thereby streamlining financial management and enhancing transparency. In this article, we will explore the feasibility of obtaining separate bank accounts for your DBA and first business, providing valuable insights and guidance along the way.
Understanding the Nature of a DBA
A DBA, or Doing Business As, is a legal designation that allows an individual or entity to conduct business using a name different from their own or the registered business name. It is a common practice for entrepreneurs who wish to establish a distinctive brand or operate multiple business ventures under a single legal entity.
Separate Bank Accounts for Your DBA and First Business
When it comes to setting up separate bank accounts for your DBA and first business, the possibility largely depends on the legal structure of your businesses and the policies of the financial institutions you work with. Here are some key considerations:
Legal Structure
Sole Proprietorship: If you operate as a sole proprietorship, your DBA is essentially an extension of your personal finances. In this case, maintaining separate bank accounts for your DBA and first business may not be necessary or required. However, it can still be beneficial for organizational and bookkeeping purposes.
Partnership: Partnerships have more flexibility when it comes to separate bank accounts. It is generally feasible to open separate accounts for each DBA and the main business. Each partner’s contributions and withdrawals should be adequately documented to maintain clarity and avoid confusion.
Business Entity:
Limited Liability Company (LLC) or Corporation: These types of legal entities have a distinct advantage in terms of maintaining separate bank accounts for multiple business ventures. Since an LLC or corporation is considered a separate legal entity from its owners, it can have its own unique bank account, including one for each DBA.
Nonprofit Organizations: Nonprofits are also eligible for separate bank accounts for their DBAs and main organization. This practice can help ensure that funds are allocated appropriately and in accordance with the organization’s mission.
Bank Policies and Requirements:
Before opening separate bank accounts, familiarize yourself with the policies and requirements of the financial institutions you plan to work with. Different banks have varying procedures and may require specific documentation, such as a DBA registration certificate or proof of business ownership.
Some banks may offer specialized accounts designed for multiple businesses or have features that allow you to easily track and manage funds across different ventures. Researching and comparing different banks can help you find the most suitable options for your needs.
Benefits of Separate Bank Accounts:
Several Advantages to Maintaining Separate Bank Accounts for Your DBA and First Business
Enhanced organization: Separating finances can help you keep track of income, expenses, and cash flow for each venture individually, making bookkeeping and financial reporting more efficient.
Legal and liability protection: By keeping your DBA finances separate from your primary business, you maintain the legal separation between entities, which can help protect personal assets and limit liability.
Improved transparency: Separate bank accounts can provide a clear overview of the financial health and performance of each business, making it easier to assess profitability and make informed decisions.
Conclusion
While the feasibility of getting separate bank accounts for your DBA and first business depends on various factors, such as the legal structure and bank policies, it is generally possible to establish individual accounts for each venture. Separate bank accounts offer benefits such as improved organization, legal protection, and transparency. Be sure to consult with legal and financial professionals to understand the specific requirements and considerations for your unique situation. With careful planning and adherence to relevant guidelines, you can effectively manage your multiple business endeavors and optimize your financial operations.
Video Transcript
Can You Get a Bank Account for Your DBA, Which is Separate From Your Business Bank Account?
The answer is yes. You can have multiple bank accounts, one for your primary business and then one for your DBA. But as I say that there is a potential for misunderstanding what a DBA is, a DBA is not a separate entity. It is not even necessarily a separate department or division in the same company. A DBA is just a nickname or an alias for a company.
But here is why the confusion often arises. You may have heard that a single business has multiple DBAs and they have one for each division or department or product line, and that is entirely okay. But just keep in mind that it is not separate business entities. It is not like a separate LLC or a separate corporation. A DBA is a nickname for an entire company. You cannot have a DBA that is a nickname for just part of a business. Now, practically speaking, what business owners will do is they may have a shoe product line and a division or a department that handles the shoe sales. And then they might have a t-shirt product line and a separate department that handles that. And they might say, “Hey, let’s set up a different DBA for that.” So, for example, it might be Blue Stone Shoes or Blue Stone T-Shirts, but both of those DBAs still are nicknames for the entire company. Why is that important? Because if somebody sues Bluestone T-shirts, they are actually suing the entire company. So the entire Blue Stone shoes department is part of that lawsuit. Why? Because the lawsuit is against a company. A lawsuit is never against just a DBA or just a department or division. So keep in mind a DBA is an alias for an entire company. And if there is a lawsuit involving that DBA or that line of business, the whole company is at risk. For that reason, a lot of business owners decide to separate their businesses into two separate LLCs or two separate corporations.
Summary
That is beyond the scope of today’s topic, but going back to the original question, can you have a different bank account for each DBA? Yes, because it is actually a bank account for the same LLC, but you might be running certain sales through that bank account and certain expenses through that bank account associated with a department in your business. And sometimes business owners use that in order to have just some separation between the two departments in the business. So, for example, maybe a department manager is a signer on one bank account, but not the other. And the other department manager is a signer on that account and not the other.
Conclusion
Thanks for joining us today. If you would like to find out more, check out our YouTube channel. We have a lot of similar topics there. And if you have questions that weren’t answered today, I would love for you to submit them. You can submit them by email or by adding a question in the comment section below. Lastly, if you would like to stay in touch, subscribe to my newsletter at aaronhall.com/free. I will also send you a free PDF, 7 Common Legal Mistakes Made by Small Businesses. Have a great day.
