I'm a freelance consultant, been operating as a sole proprietor for six months using my personal checking, now I want to open a business account but I'm confused whether I need to form an LLC first or if I can just open a business account as a sole prop.
My accountant says LLC gives me liability protection but costs like 800 dollars a year in my state between formation fees and annual reports, seems like a lot when I'm only making 60k revenue. My lawyer friend says sole prop is fine for service businesses and I can always convert to LLC later if I grow.
But when I look at business bank accounts some of them say LLC required, some say sole prop okay, I don't know if having an LLC would give me access to better banking features or if it literally doesn't matter. Do banks treat LLC accounts differently than sole prop accounts in terms of fees, limits, services?
I don't want to spend 800 bucks on LLC formation just to get a bank account, but I also don't want to open a sole prop account and then realize in six months I should have done LLC from the start and have to redo everything. What did other consultants and freelancers do when they were at this stage?
Sole proprietor versus LLC banking, does it actually matter which one I pick for a bank account??
byu/xCosmos69 inEntrepreneur
Posted by xCosmos69
2 Comments
Id prefer for a solo prop, and maybe in the future, could convert it to llc, if it saves 800 bucks for me, to me saving money is more imp rather than my efforts !!
Dude I was in the exact same spot last year – kept my personal and business money mixed for way too long and it was such a pain at tax time. Ended up just opening a sole prop business checking at Chase (they don’t care about LLC status) and it worked fine, fees are like $15/month waived if you keep a few grand in there.
The LLC vs sole prop thing is honestly overblown when you’re small – yeah you get liability protection but for consulting work where you’re not hiring employees or taking on big contracts, your risk is pretty low anyway. The bank account will literally be identical whether you’re LLC or sole prop, same limits, same services. I switched to LLC later when I started making real money and it was just a matter of updating some paperwork with the bank, took like 20 minutes.
Your lawyer friend is right – start with sole prop, save that $800 for when you’re actually growing.