When you open a joint bank account, there are risks and complications involved that you must carefully consider before committing. Of course, that’s not to say you should never open a joint account. It’s just crucial that you think about the decision before moving forward.
To help you decide if a joint account is right for you, your partner, and your business, we’ll review the pros and cons of opening a joint
bank account in this post.
Joint Bank Accounts: Everything You Need to Know:
Pros of Opening a Joint Bank Account:
1. You Can Consolidate Your Business’s Finances in a Single Account
Perhaps the most appealing aspect of a joint bank account is that it allows you to keep your business’s finances in one account. By having a joint account, you and your partner can pay business expenses out of a single account. This makes paying bills and budgeting far simpler.
Because it’s all in one place, it’s far easier for you and your partner to see how much of the business’s money is going to specific expenses. Plus, many banks will allow you to add more than just two owners on your bank account which simplifies your finances even more if you have multiple partners.
2. There Will Be Equal Ownership Rights to the Account
If you’re in business with a partner and only one of you owns the business’s checking account, it can be frustrating to wait on the account owner to withdraw or deposit funds. However, with a joint account, both partners can deposit, withdraw, and transfer funds without the consent of the other partner.
In addition to streamlining financial logistics, equal ownership of the account ensures that you have two sets of eyes on your bank statements. This can help you spot mistakes and keep your finances safe.
3. You’ll Have Extra Deposit Insurance
If your bank fails, the
Federal Deposit Insurance Corporation (FDIC) and the
National Credit Union Administration (NCUA) provides $250,000 of insurance per depositor. Therefore, if you have a joint account, you’ll have two depositors, so your deposits will be insured up to $500,000.
Cons of Opening a Joint Bank Account:
1. All Owners are Liable for Mismanagement
Regardless of who mismanages your joint account, all account owners will be liable for the costs. For example, if your business partner overdrafts the account or bounces a check, you’re still liable for those fees.
In addition, bank account mismanagement will be
reported to ChexSystems, an agency that compiles information for banks to use when deciding whether or not to let you open an account. So, if your partner mismanages the account, that will reflect badly on you and could affect your ability to open a bank account in the future.
2. There’s Minimal Asset Protection
Although it varies according to the terms of your account, creditors may be able to satisfy your partner’s debts by collecting from the joint account. Even if you were the one that deposited all the money into the joint account, your partner’s creditors could potentially collect that money. This makes it especially important to understand the details of your partner’s financial situation, including their debts, before you open a joint account together.
3. There Will Be Equal Ownership Rights to the Account
This isn’t a misprint. Equal ownership of the account was listed above as one of the benefits of opening a joint account, but it’s also a downside. Equal ownership can be a blessing or a curse, depending on how your business partner manages his or her money.
However, even if your partner has their money management under control, they may have other issues, such as a divorce, that could affect you.
For these reasons, it’s incredibly important that you know your partner and trust them completely before
opening a bank account together. Everything with your partner may be rosy now, but if they run into financial issues in the future, your money could be at risk.
Conclusion: Consider the Pros and Cons Before Opening an Account with Your Business Partner
Ultimately, the decision to open a joint bank account with your business partner is a personal choice.
If your partner decides to withdraw the entire account balance, close the account, and disappear, your only recourse will be legal action. Moreover, even if you trust your partner, there’s no way of foreseeing financial issues that could cause your partner’s creditors to come after the funds in the joint account.
If you have doubts or think it might strain the relationship, it’s probably best to avoid opening a joint account. However, if you understand the pros and cons as outlined above, and you trust your partner, a joint bank account can be a great way to centralize your business’s finances.