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Business Accounts in Canada

Luisa Rollenhagen

Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.

Most of the time here at Wealthsimple, we usually discuss the ways you, as an individual, can make smart financial choices for your future and your goals. That can include anything from building sustainable saving habits to planning for retirement. Although we love focusing on individuals and helping you personally achieve your goals, the truth is that businesses need financial structures as well. Just like you need your personal checking account to pay for your groceries or, less critically, your latest late-night Amazon spree, a business needs access to cash in order to pay for daily expenses and react quickly to any problems or new developments. That’s where the business account comes in.

A business account functions just like a regular, individual financial account, whether that’s a savings, investment, or checking account. A business account gives specifically authorized individuals access to the funds in the account, but it belongs to the business itself and all transactions are part of a business’s financial activities. You’ve probably heard something along the lines of “keeping business and pleasure separate,” and that’s exactly the point of the business account: to keep clear, separate financial records of a business’ expenses and incomes.

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This becomes particularly important once tax season rolls around. And if you’re the owner of a small business or a freelancer, keeping a separate account that’s strictly business will really save you a lot of headaches once you’re trying to file your individual and business taxes and can’t remember whether that charge for $240 on your credit card was just you overdoing it at Sephora or actually a necessary business expense that you could write off in your tax statements.

In addition to keeping track of expenses and income, business accounts are also important to help a business keep track of money owed to creditors, money owed to the business, and payroll, if the business has any employees.

Business account versus personal account

While the concept between a business account and a checking account is pretty similar, it’s much easier to open a personal account. There are a couple of key differences that separate the requirements for opening a personal account from those for a business account:

Documentation

In order to open any type of financial account, whether personal or business, you’ll need some sort of documentation to prove your identity. But for a personal account that usually just requires some form of ID, like a passport or driver’s license, and some personal information, such as your Social Security number, address, and occupation.

For a business account, you’ll need to go beyond that. Financial institutions that offer business accounts will usually ask for official documentation that proves that the business actually exists. That means you’ll need records such as a business license, a business tax ID, and anything else that confirms the legitimacy of your business.

Fees

Personal financial accounts, especially if they’re online-only, will have very low fees (or none at all). But even if you’re opening a financial account at a brick-and-mortar bank, you’ll usually pay pretty low monthly fees, and in some cases you can even get fees waived (as is the case with student accounts, for example).

But because business accounts are dealing with a much higher volume of transactions, and they’re usually holding greater amounts of money, the fees for a business account will often be higher. A business account may also charge higher fees for things like transactions or cash withdrawals or deposits that exceed their limits.

Managing credit

A business account gives you more flexibility when it comes to things like credit and managing how you receive payments. A business account can also come with a corporate credit card, which will usually have a higher credit limit than individual credit cards, and a business checking account will allow you to accept payments in credit, among other things.

Types of business accounts

There are a number of different business accounts that can be opened, according to financial needs and to the scope of the particular businesses. Oftentimes businesses will opt to open multiple business accounts to cover different financial needs.

Checking account

A business checking account fulfills the same purpose as a personal checking account—it’s primarily there to hold cash needed for everyday expenses. Although several individuals can be authorized to access a business checking account and withdraw from or deposit in it, the account belongs to the business under which it’s registered.

A business checking account is helpful for keeping business expenses and other financial records all in one place. This is particularly important for tax purposes, since a business account should always be kept separate from a personal checking account in order to avoid any accounting tax headaches. A business checking account will also let you accept payments in credit and, on a whole, add legitimacy and professionalism to your enterprise.

Savings account

As is the case with a checking account, a business savings account operates pretty similarly to a personal savings account. Money kept in a savings account will earn a small amount of interest due to the fact that the funds in the account are essentially being borrowed by the financial institution, so you earn a modest interest rate on those funds. Personal savings accounts tend to have very low interest rates (unless you choose a high-interest savings account), and business savings accounts don’t usually offer much higher rates, although there are some accounts that lock your money in for fixed periods of time and therefore offer higher rates.

Business savings accounts also tend to have higher account minimums that personal savings accounts. However, businesses still tend to use them as an integral part of a savings and growth strategy.

Investing account

For businesses that want to grow their savings beyond the interest rates offered in a savings account (or don’t want to let surplus funds get eaten away by inflation in a checking account), a corporate investing account can be a smart choice. A corporate investing account invests in GICs, mutual funds, stocks and bonds, and ETFs in order to grow your money. Opening a corporate investing account can also be beneficial for businesses that might expect to weather some good years and bad years. Why take profit at a time you’re earning a lot when you can wait for a slow year when be charged a lower income tax rate?

However, the difference between a business investing account and a checking or savings account is that the tax rate on withdrawals from corporate investing accounts are much higher than from other accounts. So it makes sense for businesses to keep the funds they need quick access to in a checking account.

Advantages of business accounts

While business accounts usually come with higher fees and more restrictions than personal accounts, they’re an invaluable management tool for businesses of any sizes. Even if you’re just a one-person business or a freelancer, a business account might be a good idea as you try to get a better handle on bookkeeping.

Protecting your own finances

This point is especially important if you’re a small business owner or a freelancer. We’ve talked before about the importance of keeping personal and business finances separate in order to avoid tax mishaps down the line, but there’s another important reason for this: if your business goes bankrupt and you don’t have liability protection and you’ve combined personal and business finances, it’s very possible that creditors will go after your personal assets when collecting on a debt. You could also increase your risk of an audit due to inaccurate business deductions. So always keep a firm line drawn between the finances of your business and those of your personal life.

Keeping track of financial records

A business account will help you keep track of what exactly your business is spending, how much it’s earning, how much your business is owed, and how much your business owes. This will help you identify profit margins, and is particularly helpful come tax season, where you might be eligible for significant tax breaks that you’d otherwise miss out on because of incomplete bookkeeping. Depending on what kind of business you are, you might even be legally required to have business accounts (as is the case with LLCs and corporations).

Accept credit payments

A business account—especially a checking account—will allow you to accept credit card payments, which will significantly bolster the reach and accessibility of your business and increase your pool of customers/clients.

Multiple account signers

By authorizing multiple people to have administrative access to accounts like a business checking account, a business can effectively delegate administrative financial tasks to various employees and save time and effort.

Perks such as business credit cards

Depending on how large a business is, it may be eligible for a business credit card. Business credit cards offer a certain level of flexibility, especially if the business has employees that need to travel or pay for things such as meals, which are costs that all fall under business expenses but which sometimes employees pay for themselves before getting reimbursed. It’s just more convenient for everyone involved when the employee can just put that business dinner with clients on the business credit card, where it’s immediately filed away as a business expense, instead of having to put their own card down and then waiting a month or so for reimbursement.

Asserts professionalism and legitimacy

Ultimately, a business account, whether it’s a checking, savings, or investment account, asserts a certain level of professionalism and legitimacy that is important for a business to present. Branded checks, a business checking and credit card, and clearly separated financial records can help establish a business as functioning, profitable, and legitimate, and can attract more clients.

Are you a business interested in growing your profits and effectively managing your finances? Wealthsimple makes it easy to set up a corporate account and set your money to work with our state-of-the-art technology. Take our risk-free survey and we’ll provide you with a personalized portfolio in just 5 minutes.

Last Updated July 31, 2019

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