A normal step for every new business is the opening of one or more bank accounts. Bank accounts range from checking accounts for operations, payroll and special projects, to savings accounts for capital reserve and certificates of deposit.

A new company should consider each of the below legal steps prior to opening a bank account:

• Complete the official formation of the company, 
• Obtain the company’s federal “Employee Identification Number”,
• Authorize an employee to manage company bank accounts, 
• Select the number of required check signatories and designate the signatories, 
• Ensure the viability of the proposed bank, and 
• Identify the applicable rules, fees, benefits, and limits for each proposed account. 

Banks establish relationships either with formal legal entities or individuals.  If a proposed business is not yet incorporated, the owner will need to complete the incorporation prior to establishing a bank account.  If the proposed business is a sole proprietorship or partnership, the owner will need to setup the bank account in the owner’s individual name.

Banks are required by law to obtain the company’s “Employee Identification Number”, or “EIN”, prior to setting up a new account.  The EIN, also know as a federal tax identification number, is obtained from the IRS.  For a sole proprietorship or partnership, the bank will use the owner’s social security number unless the owner chooses to obtain an EIN.

The company’s board of directors must authorize one or more managers to manage the company’s bank accounts, including opening, controlling and closing.  If the company’s bylaws do not expressly provide bank account management authorization, the board should designate a manager during its organizational meeting or at a subsequent meeting.  The bank will ask the manager to sign its own form document, commonly known as an “account authorization resolution”, to confirm the board of director’s appointment of the manager and the appointment of designated check signatories.

Also, the board of directors must select the number of signatories it will require to execute a company check – usually either one or two signatures.  Although using a single signatory is the most common approach, a company desiring to minimize the risks associated with manager misuse of funds usually requires at least two signatures on all checks.  Furthermore, if the signatories frequently travel out of the office, the company might give three or more managers the authority to sign checks to increase the likelihood the company has at least two authorized signatories in the office.  The selection of the number for required signatories depends on a number of factors including the company’s size, manager trustworthiness, the number of administrative procedures minimizing the impact of abuse by a disgruntled manager, and the company’s general business risks.

Once the company selects the number of required signatories, the company must appoint each authorized signatory.  The bank asks each authorized signatory to sign the bank’s own check signature card form.  The bank keeps this card for use when clearing the company’s checks in the future. 

Like in any industry, banks differ as to quality and financial strength.  The company should assess the appropriateness of the bank prior to establishing a relationship.  If the selected bank encounters future financial difficulty, the company could face loosing some of its deposited funds.  Most US bank accounts are federally insured up but not more than $100,000 per account. 

Lastly, fully research and understand the applicable rules, policies, fees, benefits, and limitations for each proposed account.  Many accounts have extra transaction fees and limitations such as the number of checks per month.  Also, review the bank’s privacy policy.   This research will help create a better expectation as to account costs and services.