The most commonly asked question when it comes to opening a business bank account is, what kind of businesses can open a current account in India? The answer is, any type of business (sole proprietorship, partnership or company) can open a bank account in India. However, the account holder must fulfil the eligibility criteria before the current account is operational.
If you own a business or intend to start one soon, this article will help you understand what kind of business can open a current account in India. Read on to know more.
What is a current account?
A current account is a type of banking account which allows businesses to keep a track of their cash flow. The current account is maintained under a business name and the business owner is the account holder. A current account allows a business owner to perform basic banking activities such as receiving money, making payments, and maintaining a record of your finances.
What is the difference between a savings account and a current account?
A savings account is interest-free, while a current account charges interest. A savings account is best suited for storing cash that you do not intend to withdraw in the near future. A current account is best suited for daily financial transactions.
Which Type of Businesses are Eligible to Open a Current Account in India?
There is no specific type of business that is eligible to open a current account in India. However, each business is required to fulfill certain criteria to be eligible to open a current account..
- Sole proprietorship Businesses – A sole proprietorship business is an unincorporated business owned by an individual. Any sole proprietor is eligible to open a current account in India.
- Partnership Businesses – In case of a partnership business, details of the partnership agreement are required. This will help the bank understand how the business is being operated. Additionally, the partners need to submit the documents to prove the existence of their business. Some banks may also ask for the details of the partners’ bank account numbers.
- Company Businesses – A company is a separate legal entity that is created using the company incorporation process. To open a current account for a company business, its mandatory to submit a few necessary documents as listed below –
- Memorandum of Association – This is the document that indicates the formation of the company.
- Articles of Association – This is the document that indicates the company’s shareholders and their equity.
- ID card – A company ID card must be submitted to open an account.
- Company Resolution – This is a document that indicates that the company’s shareholders have authorized the company’s representative to open an account.
- Power of Attorney – A POA authorizes a representative to open an account on behalf of the company.
4. Trusts – A trust is a separate legal entity created between the trustor and the trustee. Some details regarding the trust deed are mandatory to open a current account in India. Different types of trust businesses can be listed as
- Public and Private Charitable Trusts – Charitable trusts are formed to aid in the public good. A charitable trust needs to submit the trust deed to open a current account.
- Trusts for the Benefit of Specific Individuals – A trust for the benefit of specific individuals need to submit a trust deed to open a current account.
- Private Trusts – Private trusts are trusts that do not fall under the public or charitable trusts category. A private trust needs to submit the trust deed to open a current account.
- Joint Ventures – Joint ventures are separate legal entities created between two or more persons. A joint venture needs to submit the details of the joint venture agreement.
- E-commerce Businesses – E-commerce businesses deal with the sale of goods and services over the internet.An ecommerce business, needs to submit the details of the business and its banking relationship. Some banks may ask for the details of the e-commerce partner’s bank account numbers.
How to Find the Best Current Account for a Business?
Finding the best current account for a business can be a challenging task. Although there are no specific guidelines to follow to select the best bank for a business, there are a few things that can be considered before making a decision as mentioned below-
- Business Nature – Before selecting a current account for any business, evaluate the business nature. This evaluation will help select an account the best suitable account for the business.
- Operational Costs – Another important thing is the operational costs. The best way to determine the operational costs of an account is to look at the monthly fees and the charges levied by the bank.
- Banking Relationship – Besides, with better relations between the business and the bank, there comes a better management of business finances.
Conclusion
Opening a current account in India can help business owners to keep track of their finances. There are no specific criteria that you need to meet before opening an account; any type of business is eligible to open a current account in India. However, understanding the business nature prior to owning a current account helps in better management.
Also read: Opening a Savings Account? Here is The Procedure and Documents Required
