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I understand the need to separate personal finances and the business finances, be it sole-proprietorship or incorporation. I also understand that in the former it's optional, but in the latter it is required.

What I don't get is why do I have to pick from the bank's selection of "business accounts" (I am talking chequing and savings accounts). Most of the times, those business accounts are more expensive than personal ones, with no extra features that would benefit a small business or contractor-type incorporation.

Can't I just open a separate personal account and use that for business? If not, why not?

I am interested to hear the answer for both, sole-proprietorship and incorporation.

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See this answer as well as the others to a related question. –  Dilip Sarwate Apr 4 at 14:06
    
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That whole discussion is about cheques. I am asking about the bank account itself. Thanks –  Slav Apr 4 at 14:16
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Actually, if you read the other question and its answers carefully, the answers point out that business accounts can have different rules, e.g. the person signing the cheques can be changed (e.g. new Treasurer) without changing the business account which cannot be done for personal accounts, but if you don't have need for such facilities, a personal account will work just as well for a self-employed person or small business. –  Dilip Sarwate Apr 4 at 14:19
    
@DilipSarwate thank you for that note –  Slav Apr 4 at 14:33

2 Answers 2

up vote 15 down vote accepted

The bank won't let you because:

  1. Differences in required account features — Business accounts have different features (many of them legal features) that are required by businesses. For instances:

    Do you want to be able to deposit cheques that are written out to your business name? You need a business account for that.

    Your business could be sold. Then it wouldn't be your business, so it wouldn't make sense to put the business account under your personal name. The bank account and the cash it holds is a business asset and should be owned by the business, so when the business is sold the account goes with it. This is especially the case for a corporation that has shareholders, and not a sole proprietorship.

    For a business, you could also, in theory, assign other people as signing authorities on the business account (e.g. your corporate treasurer), and the individuals performing that role could change over time. Business accounts allow for this kind of use.

  2. Market segmentation — The bank has consciously undertaken to segment their product offerings in order to maximize their profit. Market segmentation helps the bottom line. Even if there were zero legal reasons to have separate personal vs. business accounts, banks would still make it their policy to sell different account types according to use because they can make more money that way.

    Consider an example in another industry: The plain-old telephone company also practices segmentation w.r.t. personal/business. Do you want a telephone line for a business and listed as such in the phone book? You need a business line. Do you want a phone line hooked up at a non-residential address? You need a business line. Here it's clear it is less of a legal issue than with the bank account, and it doesn't matter that the technical features of the phone line may be identical for the basic product offerings within each segment. The phone company has chosen to segment and price their product offerings this way.

TL;DR

Q. Why do companies choose to charge some kinds of customers more than others for essentially the same underlying service?

A. Because they can.

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+1 Wish I could give more for that TL;DR. Politics/opinions aside, that's exactly how it works. –  Dryden Long Apr 4 at 18:36
    
"Because they can" is not a satisfactory explaination, since it would automatically beg the question "why does the law allow them do to so if it doesn't make sense?" Now, it does make some sense, as for your extended explanation, so I think the problem here is just a wrong TL;DR, the core itself is fine. –  Lohoris Apr 5 at 9:07
    
@Lohoris No, the question is "why should the law prohibit to make their pricing the way that suits them best". That TL;DR is the core of the answer - it obviously makes sense, because they get more money that way, and the only reasonable reason not to do it would be if they couldn't - thus, "because they can". There are some criteria on which you're not allowed to do price discrimination - such as race/gender/ethnicity/etc; but it's both allowed and effective to charge different customer target groups different prices for essentially the same thing. –  Peteris Apr 5 at 10:27
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@Lohoris - Customer segmentation and price differentiation is a well known practice that is explicitly legal and considered appropriate in free market economies. The extreme of this is negotiating different prices for each specific individual buyer (say, haggling in a market; or most B2B deals), and that is a well accepted tradition that isn't comparable to poisoning. For a different example, many places have student discounts that is technically identical to this - it's charging different price for the exact same service, simply because they perceive that one group is more price-sensitive. –  Peteris Apr 5 at 15:25
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And "why shouldn't the law prevent that" comes from the basic principle of liberty. I'm allowed to say "I don't like that bank, I won't deal with them". The bank is allowed to say "I don't like PeterisP, I won't open an account". If I'm selling a car, I'm allowed to say "I think that buyer is rich-looking, I won't sell unless he pays extra". The bank is allowed to say "I believe that guy can pay more, so I won't sign a contract unless it has above-average pricing". That's the essence of free trade - you're not forced to take deals that you don't like; and the bank isn't forced as well. –  Peteris Apr 5 at 15:30

You could, but the bank won't let you...

If you're a sole proprietor - then you could probably open a personal account and just use it, and never tell them that is actually a business. However, depending on your volume of operations, they may switch you on their own to business account by the pattern of your transactions.

For corporations, you cannot use a personal account since the corporation is a separate legal entity that owns the funds. Also, you're generally required to separate corporate and personal funds to keep the limited liability protection (which is why you have the corporation to begin with).

Generally, business accounts have much higher volumes and much more transactions than personal accounts, and it costs more for the banks to run them. In the US, some banks offer free, or very low-cost, business accounts for small businesses that don't need too many transactions. I'm sure if you shop around, you'll find those in Canada as well.

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I understand the legal need to separate personal _finances_ and corporate _finances_, but who says they can't be separated into a separate personal-style bank account that I will use only for business? The volume is of no concern to me as a small business. I perform a higher volume of transactions for personal finances... and that account is free with no charge per transaction. Whereas a business account has all this limits and costs me money monthly, even the "small business oriented" accounts... –  Slav Apr 4 at 14:39
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@Slav you should talk to a lawyer about "who says". Generally it would be the judge. When the investor/creditor sues you - it would be you trying to save your neck by proving that your personal finances are beyond their reach once you start using personal accounts for business transactions. –  littleadv Apr 4 at 14:42
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Also, if using personal account for corporate finances - it may be claimed that every deposit that you get there in the name of your corporation is actually your dividend, and you get taxed on it. Corporation is a separate legal entity, and if you deposit corporate money to your personal account - you essentially take the money from the corporation into your pocket. If you're a sole owner - it's just a taxable dividend. If you have partners/shareholders - you can be accused of embezzlement. –  littleadv Apr 4 at 14:45
    
Thanks @littleadv I did not consider the reverse scenario where they may come after me. –  Slav Apr 4 at 14:57

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