Wondering if a partnership or join business bank account is right for you? We’ll explore everything you need to know here.
What Is A Joint Business Bank Account?
A joint business account – or partnership account – is a business bank account that can be opened and managed by more than one person. Banks have different maximum account holders allowable, but it usually ranges between two and four people.
Once a partnership or business opens a joint bank account, all account holders can make deposits and use debit cards for transactions and withdrawals. The account holders can also set up any direct debits or standing orders for the business.
These types of bank accounts are incredibly convenient and cost-effective (for business tax, accounting and auditing reasons). That is because all the business partnership funds go through a single account – making it easier to track expenses and income.
Services Of A Joint Business Account
Joint business accounts or partnership accounts come with a lot of beneficial services for partnerships and account holders:
- Easy access to accounts through mobile banking and web apps
- Your banking provider will offer specialist advice
- Taxes can be automatically set aside for tax purposes
- Track all invoices
- Instant bank transfers (in the UK)
- Expenses can be automated
- Flexible overdraft
- Financial Services Compensation Scheme Protection
- SWIFT and IBAN codes
- ATM withdrawals
- Cash deposits
- Direct debits
- Standing orders
When Is A Business Account Required?
Businesses that are legally required to open a business bank account are:
- Limited liability partnerships (LLPs)
- Limited partnerships (LPs)
This kind of business acts as a separate legal entity and needs separate financial management.
Why Do I Need A Business Bank Account For A Partnership?
As mentioned, should your business be a limited liability partnership (LLP) or limited partnership (LP), you are legally required to set up a business bank account.
If you are just a general partnership – meaning your business is run by several people – then there is no legal obligation to set up a business account for the company. The reason for this is that in general partnerships, all business partners are personally responsible for any debts, profits or losses that the business may experience. The partnership is not a specific legal entity in itself.
General partnerships can continue to use personal accounts for any business transactions, similar to how a sole trader would.
However, even general partnerships can benefit from having a business account. That is because it makes it much easier to separate and track personal finances and business transactions. It will also help when it is time to submit your company tax return to HMRC. Lastly, it enables you to accept card payments from customers.
Benefits of a partnership bank account
Apart from the benefits of business accounts just mentioned, there are also certain benefits unique to partnership or joint business bank accounts:
- Makes your business appear more professional, especially when dealing with other businesses
- Apply for loans or other funding streams
- Access specialist financial advice from your bank
- Discounted business tools (for example, accounting software)
- Higher overdraft limits
- Can add business credit cards or other expense cards
- Several banks offer an initial period without fees
- All business owners will have access to the same account
Disadvantages of a joint business bank account
As you can see, there are many benefits to opening a partnership bank account, even if you’re not an LLP and are legally obligated to do so. However, there are also several disadvantages:
- There needs to be trust between all account holders that money will not be spent irresponsibly
- If you wish to close the account, all account holders must sign off
- Partners could run up debts and withdraw large amounts of cash without consent from other partners
- Sometimes a joint business bank account can have higher monthly fees and high transaction fees
- Low (or no) interest rates
Setting Up A Joint Business Bank Account For My Partnership
Setting up a joint business bank account with your partners follows a similar process to setting up a business bank account as a sole trader.
Here is what you would need:
- Proof of ID: All account holders must provide proof of identification, for example, their driver’s licence or passport.
- Proof of address: All partners must provide their address, such as a utility bill or bank statement.
- Business details: This includes the contact details, address and Companies House registration number if you are an LP or LLP.
- Financial details: Some banks may require you to provide your yearly turnover or may conduct a credit check.
Other additional information that may be required by certain banks are:
- The partnership agreement
- Contract of the co-partners
- Certificate of incorporation
- Number of employees
Setting up a joint business account can take anywhere from one to four weeks, depending on the bank. Although some challenger banks (non-high-street banks) enable you to set up joint business accounts online, odds are you may have to go into the branch to finalise setting up the account.
Can Two Business Partners Open A Joint Business Account?
As mentioned above, general partnerships are able to open a joint business bank account, even if not legally required to do so. This partnership can consist of only two people.
It is actually recommended that a two-person partnership sets up a partnership bank account, as you will be able to manage all business finances in one spot. It also means that both partners will have equal access to the bank account.
With that said, when it is just two people managing the account, trust is imperative. As both partners will have the same access to all the money in the account, it’s possible that one partner makes a big withdrawal without any consent from the other partner.
Similarly, partners will become financially linked. This means if one business partner has a bad credit score, the other partner may be affected too.
Alternatives To Joint Business Bank Accounts
As mentioned, LPs and LLPs are required to set up a joint business bank account. However, there are some alternatives available to a general partnership.
Firstly, you can simply open a standard business account and only one partner is the signatory. This means that all the financial responsibility – like tax payments, invoicing and paying employee salaries – will fall to one person in the partnership.
Should your business deal with European clients who make payments in euros, you can also consider opening a specific bank account that deals with payments in that currency. This type of bank account is typically overseen by challenger banks. Just beware – there is often a monthly maintenance fee involved, which could be fairly expensive.
If you are simply running a small business with a friend or trusted family member, it is possible to manage your business finances through a sole trader account.
Can I add people to my business bank accounts?
Yes, if you already have a business account, it may be possible to add someone to your account, turning it into a partnership or joint account. Some banks will allow you to do this process online, although it might be easier to go into a branch.
By adding someone to your existing business account, you have the option to decide how much access you want them to have. For example, they could be allowed to make payments and withdraw money at an ATM, but not set up any debit orders or make loan applications.
What are the costs of opening and having a joint business account?
It depends on the provider. Some may have no set-up fees, but then require a monthly fee for the account to remain active. There could also be additional banking fees, like when you withdraw, make a bank transfer, or make cash payments.
If you are concerned about fees, check with your provider before signing up for a new account.
Do I need a business bank account for every partnership?
Limited partnerships and limited liability partnerships are legally required to open a business account to manage all finances.
If you are part of a general partnership, you do not have any legal obligation to open a joint business account, however, it can make tracking business expenses a lot easier.
Is it possible to access credit through joint business accounts?
Yes, opening a business bank account can be a great way to begin building a credit profile for your company. This will potentially make it easier to access credit later.
Some banks will also allow business accounts to have an overdraft.
Is it possible to freeze a joint account?
If you have lost faith in your business partner, or you are scared of overspending, then you can contact your provider and ask them to freeze your business account. However, this is certainly not a permanent solution, and you will have to discuss the spending situation with your partner and come up with a better plan to manage your joint business account.