Opening a business bank account in Texas: the documents and decisions

The checklist, by type of business

To open a business bank account in Texas you will generally need identification for everyone who will sign, the business's tax identification number, proof of the business's legal existence, and, if it operates under a different name, an assumed name certificate. For an LLC or corporation that usually means the certificate of formation filed with the Texas Secretary of State, an EIN, documents showing who can sign for the company, and information about its owners. A sole proprietor using their own name needs less. Each bank has its own exact list, so call ahead.

I help small and mid-size businesses at Frost Bank open and run their accounts, and the most common delay at account opening is not a missing form. It is a mismatch: the name on the EIN letter, the formation documents and the assumed name certificate do not quite line up. A few minutes of checking before the appointment saves a second trip or a week of back-and-forth.

Sole proprietors and general partnerships

A sole proprietor operating under their own legal name can usually open a business account with personal identification and either a Social Security number or an EIN, depending on the bank. If you operate under any other name, such as Smith Landscaping rather than John Smith, you will need an assumed name certificate, often called a DBA.

In Texas, unincorporated businesses file that certificate with the county clerk, not the state. Dallas County's guidance on House Bill 3609 lists sole proprietorships, general partnerships and joint ventures among the filers whose assumed name certificates continue to be filed with the County Clerk's office. If you do business in more than one county, ask each county clerk whether you need to file there as well.

One point to plan for: if you later form an LLC or corporation, the new entity is a different legal owner and will need its own account opened with its own documents and EIN. You cannot simply rename the sole proprietor's account. Owners who expect to form an entity within the next year sometimes choose to do that first, so they only open accounts once.

• Government-issued photo ID for each signer
• Social Security number or EIN, as the bank requires
• Assumed name certificate from the county clerk, if using a business name
• For a general partnership, a partnership agreement if you have one

LLCs and corporations

An LLC or corporation formed in Texas exists once its certificate of formation is filed with the Secretary of State, and the bank will want to see that document. It will also need the company's EIN. The IRS issues EINs free online, and its own page warns business owners to beware of websites that charge for one.

The bank also needs to know who is authorized to act for the company. That is usually shown by the company agreement for an LLC, bylaws for a corporation, or a resolution naming the people who can open accounts and sign. If you formed the company quickly and never prepared a company agreement, this is a good time to ask your attorney about it; ownership and authority questions are far easier to settle now than in a dispute. A business attorney's guide on partners with no buyout agreement shows what can happen when they are left open.

Single-member LLCs follow the same process. Even when you are the only owner and the only signer, the account should be opened in the LLC's legal name with its EIN, and the bank will still ask for the formation document and your identification as the owner and the person who controls the company.

• Certificate of formation filed with the Texas Secretary of State
• EIN confirmation from the IRS
• Company agreement, bylaws or a resolution authorizing signers
• Assumed name certificate filed with the Secretary of State, if using a different name
• Photo ID for each signer and for the owners the bank must identify

Where Texas assumed names are filed now

This changed in 2019 and still trips people up. According to Dallas County's summary of House Bill 3609, since September 1, 2019 assumed name certificates for corporations, limited partnerships, limited liability companies, limited liability partnerships and foreign filing entities are filed with the Secretary of State rather than recorded locally. The Secretary of State's Form 503 is the assumed name certificate for those entities, and it states that the name is used for a period not exceeding 10 years from filing.

So an LLC called Smith Holdings LLC that trades as Smith Landscaping files Form 503 with the state, while John Smith operating Smith Landscaping as a sole proprietor files with the county clerk. Bring a copy of whichever applies; the bank needs to match the name on checks and deposits to the legal owner of the account.

Why the bank asks about owners

Owners are sometimes surprised by how much the bank asks about the people behind an LLC or corporation. That is a federal requirement, not a local preference. FinCEN's Customer Due Diligence rule requires covered financial institutions to identify and verify the beneficial owners of companies opening accounts, including any individual who owns 25 percent or more and an individual who controls the company.

In practice, expect to provide names, dates of birth, addresses and identification for those people, and to answer questions about what the business does, where its money comes from and what activity to expect. Clear, accurate answers help the bank set up the right account and avoid questions later when larger deposits or wires start moving.

Keep the bank informed when ownership or control changes later, such as when a partner joins or leaves or a new manager takes over the finances. Signers and online banking users should be updated at the same time, so that only the people currently responsible for the company can move its money.

Decisions to make before you sign

Opening the account is the easy part. The choices you make on the first day shape how well it works for years. Think about how many accounts you need: many businesses keep a separate account for payroll or for tax reserves. Decide who can sign, who can view, who can enter payments and who can release them. Set those permissions deliberately rather than giving everyone the same access.

Consider which services you need now and which can wait. A business that receives checks will want mobile or remote deposit; one that pays vendors regularly will want ACH; almost every business benefits from fraud controls such as positive pay and alerts, which I describe in my guide on protecting a business account from check fraud and payment scams.

• How many accounts, and what each one is for
• Who signs, who views and who approves payments
• Online banking users and limits
• Deposit and payment services needed now
• Fraud controls and alerts from day one

Mistakes that delay an opening

The name mismatch is the classic one: the EIN was requested under a slightly different spelling, or the company's legal name includes a comma or abbreviation that the certificate of formation spells differently. Check every document against the certificate of formation before your appointment. The second is an unfiled assumed name. If customers will write checks to a trade name, the bank needs evidence that the name belongs to the account owner.

The third is bringing someone who is not authorized to sign, or missing a co-owner whose identification the bank needs. The fourth is a company formed in another state that operates in Texas without addressing whether it needs to register here; ask your attorney before you open accounts. And the fifth is opening an account in the owner's personal name for a business that is an LLC, which defeats much of the point of forming it. I explain why in my guide on running a business through a personal account.

If you are moving an existing business

If the business already banks elsewhere and you are switching, the documents are the same, but the timing is different. Open the new accounts first and run both banks side by side while deposits, payroll, vendor payments and tax payments move across. Closing the old account early is the most common cause of returned payments. My guide to switching business banks without missing payroll lays out the order.

An existing business is also a good candidate for a fresh look at structure. Accounts opened years ago, when the company was smaller, may no longer fit. A banker can suggest a setup that matches how money moves today.

Making the first appointment count

Call the bank before you go and ask for its exact list for your type of business, then bring originals or certified copies along with a short description of the business, expected monthly deposits and how customers will pay. If several owners or signers are involved, ask whether all of them need to be present or whether some can complete steps later.

For business owners anywhere in Dallas–Fort Worth, I am glad to walk through the list before you gather anything, so the opening happens in one meeting. Requirements vary by bank and by situation, and this guide is general information rather than legal advice; for questions about entity formation, registration or ownership, talk to a Texas business attorney, and ask your accountant about tax IDs and filings.

Questions people ask me