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Do You Know Your Bank Signatories?


As a small business owner, you may have co-owners, partners, or employees that you have authorized to do basic functions such as signing checks on the company’s behalf, making deposits, or even doing basic online banking.  However, whether you trust them to act in good faith may not be the only obstacle when deciding to give them the permission and requisite information to do these transactions.  In order for someone to become an authorized signer to a business bank account, they typically have to fill out an application, provide photo identification, and sign other related documents at that bank.

Recent situations have unfolded where an otherwise authorized signer on a  business bank account, someone who is legally permitted to sign on behalf of the company, has made withdrawals and transactions that were not authorized by the rest of the owners, and the bank did nothing to verify the transaction.  Small business owners have checked their operating account balance to find that it was empty, and a transfer had been made to the authorized signer’s personal account without permission.

An LLC or Corporation is a wholly separate entity from the actual business owner, and the entity itself is the owner of the business bank account.  Anyone that is an authorized signer can theoretically go into the bank that the LLC uses, and perform transactions.  The owner or Managing Member of an LLC has different legal responsibilities than an authorized signer, and accordingly, whoever you are picking to be an authorized signer for your business should be picked very carefully.

The problem that arises is that bank representatives are not required to verify the underlying purpose of a given transaction, and as long as the authorized signer is “on the record” as being authorized, they can complete the transaction.  This leads to situations where a disgruntled co-owner or agent of a company could perform any financial transactions with business money, and face no repercussions.  Even if the bank has all of the authorized signer’s personal information, including a sample of how they typically write their signature on formal documents, there’s no way for them to verify if that $30,000 transfer from the LLC’s operating account to their personal checking account is for business related purposes or not.

What’s the best way to combat this?  At the Jacobs Law, we can help in drafting a Bank Account Signatory Contract and Delegation of Authority Contract for your agents and employees, to ensure that you and the company will be protected from liability if this occurs.  These documents will clarify the exact privilege that the Authorized Signatory is permitted to do – whether it’s signing checks, making withdrawals up to a set amount, or prohibiting cash withdrawals of any kind.  Having formal documentation between you and your Authorized Signatory outlining their permissions and fully understanding what your bank’s procedures are for transactions that seem out of the ordinary, is crucial to protecting the financial state of your company.


If you plan to form a business entity, or need to add Authorized Signatories to your business banking accounts, contact Boston Business Lawyers at The Jacobs Law LLC today at 1-800-652-4783 or email us at ContactUs@TheJacobsLaw.com to get peace of mind that your accounts will be safe.

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