Changing Signatories to Corporate Checking Account

Inquiry/Issue

A corporation has an account with the Bank. The Bank understands that a principal of the corporation is retiring and that the other signer is leaving the company.  The Bank knows that it needs a new resolution with new signers, but asks what it should do if it does not receive the new paperwork by the time both signers leave the company. Can it freeze the account? Also, the new signer or signers may be residents of the United Kingdom. Would the Bank need to have a W-8BEN signed?

Response Summary

The Bank will have to obtain a new corporate resolution indicating that the two individuals are no longer authorized to sign for the corporation, and authorizing the new signatories. Whatever mechanism the Bank institutes for doing so, it must examine each check presented for payment to be sure that it is properly authorized, and to accept or reject it in a timely manner. Some checks signed by the present authorized signatories can be presented to the Bank for payment for as much as six months after their date. The W-8BEN would not be appropriate for a nonresident alien who is a signatory to the account, as it is intended to be used when such an individual is the beneficial owner of certain income subject to U.S. tax. The Bank, however, will have to comply with its CIP requirements for such a signatory, including an OFAC SDN search.

Response Detail

Under Sections 3-403(a) and 4-401(a) of the Uniform Commercial Code, as enacted by the state in which the account is held, a bank may charge an account only for an item that is properly payable. An item is properly payable if it is authorized by the customer and in accordance with any agreement between the customer and the bank. An unauthorized signature is ineffective.

In this case, the Bank has on file a corporate resolution authorizing two officers of the corporation to sign for the corporation. Presumably, the authorized signers have also signed a signature card for the account. If both officers leave the corporation, then it will be necessary to obtain a new corporate resolution indicating that the two individuals are no longer authorized to sign for the corporation and authorizing new signatories to do so. This resolution should be consistent with the authority to act provided by the Articles of Incorporation and by-laws of the corporation, which should also be on file with the Bank.

The Bank should also be aware that, under Section 3-403(b) of the Uniform Commercial Code, if the signatures of both officers are required to constitute the authorized signature of the corporation, the signature of the corporation will be unauthorized if one of the required signatures is lacking.

If the Bank does not receive a new corporate resolution, it will still be obligated to pay checks properly authorized which are presented as much as six months after their date. Certified checks may be presented even later than that. UCC §4-404. Whatever mechanism the Bank institutes for doing so, it must examine each check presented for payment to be sure that it is properly authorized, and to accept or reject it in a timely manner.

With regards to the use of the W-8BEN, this is appropriate for nonresident aliens who are the beneficial owners of certain kinds of income (e.g., dividends, rents, royalties, annuities, compensation for services rendered) subject to U.S. income tax. A foreign entity which is the beneficial owner of such income would complete a W-8BEN-E, Instructions for Form W-8BEN (Rev. February 2014). Given that the accountholder is a Delaware corporation, neither form would be appropriate, whether or not the account is an interest-bearing account. Some banks apparently obtain a W-8BEN from a nonresident alien signatory anyway, just to have whatever benefit the certification of the form would provide. This Bank, however, will be required to comply with its Customer Information Profile requirements for any signatory, including an OFAC Specially Designated National search.

This entry was posted on Friday, August 29th, 2014 at 6:01 pm.