Keeping significant money in your business account is essential as you might need it in your crisis. What if your company faces a severe financial loss from a malware attack? You will need a lump sum of funds to overcome such a situation.
However, there are some instances where you might have to withdraw money from your business account to your account. Most people think transferring money to their bank account from a business account is illegal, which isn’t true.
There are several reasons why you might have to transfer funds to your account. The top reasons for doing this include paying your employees’ salaries, covering your monthly expenditures, and receiving dividends.
Some companies restrict employees from withdrawing money from their business account to a personal account. Different businesses work differently regarding money transfers. Hence, you must know whether your company allows you to do it before transacting the outstanding amount.
Let’s find in which type of business ownership system you can transfer money to your account:
Types of Business Ownership Systems where You Can/Can’t Withdraw Money to Personal Account:
You can transfer money to your account if you run an unincorporated business or have a sole proprietorship. In this type of business, only one entrepreneur pays the personal income tax on the business’s profits.
It is legal to withdraw money from your business account in this ownership system. So, consider transferring the necessary funds from your company account for emergencies.
Here are the other business ownership systems where it is legal to withdraw money to your account:
1. Single-Member LLC
Are you an owner of a single-member limited liability company (LLC)? You can send the required amount of funds from your business account to your account, which is also legal.
So, install reliable and easy-to-use fund transfer apps like Wise or TorFx. Link your business and personal account with these apps and send the business money to your account within seconds.
2. A Single-Owner S Corp
A single-owner S Corp is another business ownership system where you can legally transfer money to your account. It allows you to pass through income, losses and deductions through your corporation to your shareholders.
Only one shareholder in this type of business is the corporation’s owner. The single-owner corporation follows a different payment policy. The owners determine a reasonable salary for themselves in this type of corporation.
S corporation owners also pay their employees and shareholders. The remaining business profit can be transferred to their personal bank account from the business account. He can withdraw the money without legal constraints, being the company’s sole owner.
3. Partnership
This type of business consists of two or more people to manage the daily operations. A formal agreement is made between the co-owners of the company. They agree to share the profits from the business. The owner and co-owner handle different responsibilities in a partnership business.
Do you have a business partner? Ask the person before transferring the business profits to your account. Most partnership firms mention the terms of money withdrawal in the agreement. Hence, you can transfer money from your business account to your account if your partners sign the agreement.
Can Your Business Partners Withdraw Money in Their Account?
Your business partners can withdraw cash only if it isn’t restricted in the company agreement. The owner of the partnership firm will agree to his business share to the co-owners voluntarily.
If, for some reason, the owner is forced to agree with the business partners regarding the cash transfer, it is called non-voluntary withdrawal.
4. Multi-member LLC
Multi-member LLC is the exact opposite of a single-member LLC. Here, the business is operated by more than one owner. Like single-member LLCs, this type of business grants limited personal liability to the co-owners.
Multi-member limited liability companies are relatively easier to set up than single-member. Friends, colleagues or investors form most multi-member LLCs.
For instance, you can start a business with your friends and share the profit and loss. Sometimes, office colleagues also form a new offshoot business. Thus, you need all the members’ involvement in your multi-member LLC for the cash withdrawal. You can’t transfer money from your business to your account if anyone disagrees.
5. Multi-Owner S Corporation
Most people confuse a multi-member LLC with a multi-owner S corporation. However, these are two different business ownership systems and work differently. Multi-member S corporations can have a maximum of 100 shareholders.
The rules regarding the money withdrawal are the same as single-member S corps. The owner of the S corporation has the legal right to transfer money from their business to a personal account. However, he must ask the co-owners before withdrawing huge cash.
6. Corporation
You must know what a corporation is. It is formed by a group of shareholders who share a common goal and share the business profit and ownership. Transferring money from a business account to a personal account in this type of business is also legal.
The board acts on behalf of the shareholder in a corporation. They generate the policies and make all the business-related decisions. Hence, the money withdrawal must be made with the board members’ approval.
Types of Business where Cash Withdrawal is Illegal:
A few business ownership systems keep you from transferring cash into your account. For instance, the limited partnership business follows a strict policy.
Only a general partner can distribute the profit in this business arrangement. You can’t withdraw a lump sum in your account in the limited partnership. Limited Liability Partnership also follows the same rules regarding money withdrawal.
Legal Complications Associated with Transferring Money from Business to Personal Account
Transferring money from your business to your account is legal in most instances. However, cash withdrawal won’t be a good idea in some cases. For example, moving cash between these two accounts might cause tax complications.
Thus, you must consult with your tax accountant before the money transaction. He will guide you if transferring the money from your business to your account will be a good or bad idea.
When will moving funds from your company to a personal account be a good idea? Let’s say you want to protect your liability by investing only some business money. Then, you must transfer some of the business profits to your account. It’s best to contact your business account before making such a decision.
How Can You Transfer Money from Your Business to a Personal Account?
Some third-party apps allow you to transfer your business profits to your account. However, you must check a few factors before using these apps. Check the money transfer app’s monthly/yearly subscription fee.
Additionally, checking the app’s security and privacy features is essential. It should have a simple yet intuitive interface and fast transfer time. Are you looking for an FCA-regulated money transfer app? Go for Wise; it offers instant money transfers between business and personal accounts.
Airwallex is another easy-to-use software that you can use to transfer money from your business to your account. It lets you make low-cost business transfers within minutes. The only downside of Airwallex is its limited transfer payment options.
TorFX is another popular app that lets you move money between business and personal accounts. You don’t need to create an account on TorFX to pay yourself a salary from the business account. So, compare the ratings and reviews of these money transfer apps and choose the best one for you.
