Things You Should Know About Opening a Bank Account as a Sole Trader

Before we talk about opening a sole trader bank account, let’s discuss whether it’s mandatory to do so. And the answer is ‘no’. This is because a sole trader is not legally separate from his/her business. That said, a sole trader account is a reality and many sole traders have opted for such an arrangement. In this article, we’ll talk about the reasoning behind sole trader accounts and the things you would need to open the account if you were to set up as a sole trader.

Purpose

The following are reasons why a sole trader bank account makes sense:

• Personal bank account’s terms and conditions could hinder using the account for business.
• If the business name is not the same as the individual’s name, then cheques received in the business’ name cannot be credited to a personal account.
• Bookkeeping becomes easier if all business transactions are allotted to an individual bank account.
• With a separate business account, it also becomes easier to monitor the cash flow of a business and determine its economic state (profit/loss).
• When personal and business money are not merged, inadvertent use of business money for personal expenses can be avoided.

And when an individual runs multiple sole proprietorships, all of the aforementioned aspects hold even more weight.

Opening a Bank Account

To open a business bank account, a sole trader must have certain documents handy. The requirements for these documents could vary slightly with regions, by the way. The documents needed should serve as proof of your address and identity. Also, you should prove that you’re 18 years of age or above.

If multiple people are going to operate your business account, identity proofs of all the nominated individuals or authorised signatories to the account should be provided. Identity proof documents are also needed for the business’ beneficial owners, irrespective of whether they would operate the account or not. A beneficial owner is any individual who controls or is entitled to – directly or indirectly – 25 percent or more of the business’ profits or capital, or has 25 percent or more voting rights, or exercises control or authority over the business’ management.

To prove identity, documents such as a valid passport, driving license, and/or national ID card would be fine. These documents can also serve as address proofs, provided they have residential address on. If it’s not your own house, a tenancy agreement (from a recognised letting agency such as the local council); credit union statement, building society bank statement, credit card statement (last three months); mortgage statement; life insurance policy; motor insurance certificate; utility bill (electricity, water, or gas); telephone (landline) bill; or cable television bills would be required.

To prove your business’ credentials (existing or startup), you could need one or more of the following papers:

• Business bank statement from last three months (for an existing business)
• Utility bill (last three months)
• A supplier invoice (last three months dated)

Depending on your location, you may have to furnish a few more business documents. For example, if your business is in the United Kingdom, HMRC correspondence (not more than 12 months old) and/or a letter from your business accountant to a bank need to be made available. The document provided should have your name on it, trading name (if applicable) and business address. If, as a sole trader, you are not able to furnish any of these documents, your business place could be visited, in case your business and residential addresses aren’t the same.

Resources for Further Reading:

 

Setting up in business as a sole trader

https://www.theguardian.com/money/2005/oct/13/finance