Business owners can protect their personal assets from the debts and obligations arising from operating a business by incorporating as a corporation or organizing as a limited liability company. There is no legal entity called a limited liability corporation. However, both corporations and LLCs provide limited liability protection that strictly limits the owners of these businesses to the loss of their investment in the business. Both LLCs and corporations can have interest earning deposit accounts.
Corporation
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Corporations are legally recognized as separate entities wholly distinct from their owners with the constitutional rights that natural persons have. Unlike natural persons, corporations can exist into perpetuity. Corporations acquire assets and incur debts in the corporation’s name. Stockholders, directors and officers have no liability or direct claim on the assets a corporation owns.
Limited Liability Company
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LLCs are separate legal entities that offer similar protections and benefits as corporations but with the administrative and operation flexibility partnerships provide. Like corporations, LLCs are a legal business structure that is distinct from its members, or owners. Consequently, LLCs own assets and have obligations and debts which no member or manager has any claim to.
Assets
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Since LLCs and corporations are legal entities that can own assets, both business forms can own or possess any type of asset needed to operate its business. These include short-term cash and cash equivalent assets including checking accounts, savings accounts, money market accounts, brokerage accounts and mutual fund accounts. An interest bearing deposit account is a type of checking or savings account.
Establishing a Deposit Account
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To establish a deposit account, an LLC or corporation must obtain an employee identification number, or EIN, from the Internal Revenue Service. A corporate officer must then typically present the articles of incorporation or articles of organization with the EIN to the bank at which it will establish the deposit account. The bank will then use this information to set up the account in the LLC’s or corporation’s name with designated company officers or managers as the signers on the account.
Example
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David and Mark incorporated Ace Furniture, Inc. to provide office furniture to area small businesses. In the articles of incorporation they are listed as both shareholders and officers in the corporation with David serving as both president and secretary and Mark serving as treasurer. They file for an EIN online with the IRS and immediately obtain one. They take their articles of incorporation, certificate of incorporation they received from the secretary of state and the EIN confirmation print-out to their community bank to open an interest bearing checking account. The bank officer uses the documentation to set up Ace Furniture, Inc.’s account with David and Mark as the signers and account administrators.
