I am not sure if this is the best forum for this question so excuse me if it is not. I would like to find out opinions on on-line transfers from a business account to a personal account of a principal or other employee of the business. The stated purpose is payroll or expense reimbursement but I would feel better if they are done via check as opposed to transfer but I am not sure if I could come up with a better reason than "I don't like it". Please feel free to weigh-in. Thanks.

The check would be a better paper trail especially if it is for payroll. Seems like it would be hard to give employee tax forms without more documentation. The other red flag is that the account names do not match. Not to say that we do not transfer for some of our known and good customers funds from their account to another account but not often. Business accounts normally keep better records that just doing transfers. They need proof at end of year for tax filing.

The only way I can do this with my business account is via ACH, which I have not set up for the limited transfers that take place.

Because of the risk of a party unscrupulously transferring a large $ amount from the business account, many banks won't allow this.

The question has been posed in Bankers' Threads hundreds of times in one form or another. The responses generally suggest

• Lack of corporate or other entity authority for such transfers
• Funds transferred out to personal accounts without appropriate entity authority (in other words, specific authorizing vote of the entity's governing body) could be examples of breaches of fiduciary duty (by an official of the entity)
• If the entity fails to meet its financial obligations to a third party, the third party might come after the bank for facilitating unauthorized transfers
• It's a poor business practice.

That one's always worked for me! You've been delivered a caisson of ammunition, but don't ever doubt your instincts.

and don't forget the inevitable lawsuit when it is discovered that the transfers weren't company authorized, even if done by an authorized person (embezzlement) and the claim that "the bank was in the best position to stop these". Even if you win in court, it will cost you to defend, plus a hit to your reputation

I know I am in the minority on this, but had to speak up. If you force a small business owner to use a check to transfer to their personal checking account, you will lose their accounts: I have this functionality on my Chase accounts, I have this functionality on my Citi accounts, I have this ability on several regional and community bank accounts, and many other banks allow this (including every bank I have worked for since online banking became a thing). Competition is fierce, so I don't understand why you would tie the hands of your bankers to obtain and keep profitable business accounts. I get that:

- "if" a small business owner gives access to an employee, and
- "if" the employee is a bad guy, and
- "if" there is a bad transaction, and
- "if" it is embezzlement, and
- "if" the company sues the bank, and
- "if" the bank looses there
- "might" be a loss.

However, that is a lot of "ifs" for something that "might" happen, especially when not allowing it "will" result in you losing business to the competition.

Now - I am assuming this is a small business account (not mid-size or larger). Joe's Pool Repairs and Joe is transferring money to himself and maybe his wife (she answers the phone) and son (who is a crew supervisor). But, force them use checks or buy an expensive ACH product if you'd like; just send them my way when they get that cashier's check for account closing. Actually, don't give them a cashier's check... I can do online transfers to/from other banks' accounts.

Finally, as far as best practices... if any of the other people that have commented can show me a case in which a bank has been found negligent by allowing an online transfer that could not have similarly occurred via ACH, I will retract my entire post above.

I'll accept your philosophy on this question as regards sole proprietorships, but not for businesses that are entities.

As for cases in which a bank has been found negligent and had to pay up -- I can't point to one. Many such cases would settle out of court and many that do make it through the court process are small enough as not to cause ripples in the press.

As for me, if there's a chance the IRS will come along later and ask my bank to produce copies of any checks it has cashed that were payable to "ABC LLC," I'll take the easier route and avoid the possibility.

Many banks allow for sole props, not entities, as John stated.