Opening Checking Account For IPHC

Questionable Content Webcomic #2650Jeph Jacques, the webcomic artist of “Questionable Content,” recently related the difficulty he had in opening a checking account after telling the clerk what the business name was, where the clerk looked at him funny and asked if the business sold marijuana over the Internet. I ran into the same problem when I tried to open a checking account for my intellectual property holding company (IPHC), except no one accused me of selling marijuana over the Internet.

The people at THE BANK were more than happy to open a FREE small business checking account for my IPHC until we got into the nitty-gritty details.

The purpose of an IPHC is to separate my copyrights away from the writing business and myself personally. If someone sues me, wins a judgment and tries to go after my assets (i.e., royalty income from copyrights), they would have to file a lawsuit in Wyoming since I incorporated my IPHC there. Even if they won a judgment in Wyoming to receive income from my IPHC, I’m not legally obligated to distribute any income and they would have to pay taxes on “phantom income” that they would never receive.

The business name for an IPHC should never include your legal name to make it difficult for ambulance chasers to casually search databases for easy targets to file frivolous lawsuits against. Wyoming doesn’t even require owner’s name on the public record, if done through a registered agent. (You still have to reveal the name of your IPHC in a court of law to avoid criminal accusations of hiding assets during a lawsuit.) Most IPHC names are typically unrelated to what the business actually does.

Even after I explained the logic behind the name and the purpose of the IPHC, THE BANK viewed my small business with suspicions. Banking regulations have tightened since the aftermath of 9/11 to prevent terrorists from creating shell companies to launder money into the United States. (Never mind that corporations and Wall Street create shell companies to hide all kinds of activities, legitimate or otherwise.) Since I was clean-shaven when I walked into the branch office, no one accused me of being a terrorist.

With some major misgivings, the branch major submitted my application. We spent the next three weeks going back-and-forth over whether my IPHC was a legitimate business. THE BANK didn’t like my business formation documents because none of it was in my legal name, I didn’t have a corporate website, and used a personal email address. THE BANK refused to accept documentation from my registered agent because it didn’t have a fancy letterhead. I couldn’t set up a cooperate website and email addresses until I had a checking account set up.

The application for a checking account was eventually rejected because my IPHC wasn’t registered with the Secretary of State (SOS) office to do business in California. I did a face-palm when I heard that. Registering to do business in California would require revealing my identity to every ambulance chaser in the state and paying an annual $800 USD franchise tax on income earned over the Internet. That would defeat the purpose of setting up an IPHC.

THE BANK did approve opening a business account for my writing because all the business formation documents were in my legal name, I had a corporate website and email address, and registered with the California SOS. With all my ducks lined up in a row, I got approval in 15 minutes.

As for my IPHC, all my transactions go through PayPal. That’s fine for now. But PayPal has a reputation of randomly freezing accounts with substantial balances, especially if the account wasn’t linked to a checking account, and takes months to resolve. If I ever open a checking account for my IPHC, I would have to fly into Wyoming and present the paperwork in person. That, of course, would be a business tax write-off.