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#1967133 - 10/06/14 03:31 PM Business checks deposited into Personal account
Happy Offline
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What is a bank's responsibility if a business has checks written to the business and they endorse them with the business name and deposit the checks into their personal account? Business has an EIN and a business account. Does a bank have to have a written policy that addresses this? I am not aware of a regulation that prohibits this.

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Deposits and Payments
#1967142 - 10/06/14 03:56 PM Re: Business checks deposited into Personal account Happy
rlcarey Online
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Much of this depends on much more detail:

they endorse them with the business name and deposit the checks into their personal account?

Who is they? Have "they" been granted this power to endorse checks over to third parties made payable to the business (I highly doubt it). If not, the bank may be on the hook for the entire amount of the checks.

Does a bank have to have a written policy that addresses this?

Have to have a policy - NO. Do most banks have a Policy that says that this is strictly prohibited - YES.

These actions are telltale signs of embezzlement, tax evasion and the list goes on.
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#1967205 - 10/06/14 06:14 PM Re: Business checks deposited into Personal account rlcarey
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Thanks rl. In your experience is this addressed in the account agreement or in a policy?

In reply to your question about endorsing checks, the owner/co-owner of the business is endorsing the checks made payable to the business and depositing them into their personal account.

This is a vignette of course.

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#1967218 - 10/06/14 06:36 PM Re: Business checks deposited into Personal account Happy
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Why would it be in an account agreement? You do not address all of the possible things that someone cannot do in an account agreement. It is bank policy.

It doesn't matter what the relationship of the person endorsing the checks might be to the company. Just because they are an owner or co-owner, without a proper corporate resolution authorizing the person to do this for the company, then the bank doesn't have a leg to stand on if there is a dispute of any sorts.

Stop it and stop it now.
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#1967221 - 10/06/14 06:41 PM Re: Business checks deposited into Personal account Happy
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Oh and if you happen to need another reason look forward three years when you receive the grand jury subpoena asking you to identify every check made payable to the business that was deposited (or cashed) at the bank. The person processing the subpoena pulls the account records of the business.

Later in the process, the prosecuting attorney realizes that the bank allowed a bunch of checks made payable to the business to be deposited to this personal account and none of these records were provided to the court.

Hence, the Bank gets slapped with a huge contempt of court action.
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#1967226 - 10/06/14 06:46 PM Re: Business checks deposited into Personal account Happy
osucpa Offline
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Agree totall, you might also review your state's UCC as to how business checks are to be deposited.

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#1967228 - 10/06/14 06:48 PM Re: Business checks deposited into Personal account Happy
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The only circumstance in which such activity is permissible is when the business is a sole proprietorship and the individual cashing the checks is the sole proprietor. That's because the business is not a separate legal person from the proprietor. But many banks don't allow checks payable to a business to be cashed or deposited to the owner's personal account even under those circumstances because
  • A sole proprietor can direct his or her customers concerning the payee name on any check payments. Checks payable to the individual owner can readily be cashed by the owner; checks payable to the business name aren't so easily cashed.
  • Having an exception to a general prohibition only complicated matters for tellers. Give them a simple yes or no policy and they are less likely to mess up.
  • Tellers aren't in the best position to determine whether a given customer's business is a sole proprietorship or a separate legal entity, especially because business names don't always help separating one group from the other.


If you allow someone from a business owned by an entity to cash checks payable to the business and the business has creditors (or taxes) that aren't getting paid, once the creditors or tax agency learns that checks have been cashed, they will look at your bank's deep pockets. And the IRS or state tax folks could issue a subpoena for copies of all checks payable to the business that you've cashed. From experience, I know that that subpoena will be a major problem for you.
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#1967253 - 10/06/14 07:33 PM Re: Business checks deposited into Personal account John Burnett
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Quote:
[/quote] Why would it be in an account agreement? You do not address all of the possible things that someone cannot do in an account agreement. It is bank policy.
Quote:
ouch, bad question :-)

Quote:
It doesn't matter what the relationship of the person endorsing the checks might be to the company. Just because they are an owner or co-owner, without a proper corporate resolution authorizing the person to do this for the company, then the bank doesn't have a leg to stand on if there is a dispute of any sorts.[quote]
I added the fact that they own the business in response to your earlier comment about they having the power to endorse checks over to third parties.

I appreciate all of your responses. They were my thoughts but wanted some confirmation due to the fact that they are a "good customer" I know, are they really a "good customer" Don't jump on that comment. I have read all the threads on that issue.

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#1967261 - 10/06/14 07:37 PM Re: Business checks deposited into Personal account Happy
rlcarey Online
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I added the fact that they own the business in response to your earlier comment about they having the power to endorse checks over to third parties.

Ownership of a company has nothing to do with what powers they may or may not be granted regarding the operation of the company.
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#1967271 - 10/06/14 07:48 PM Re: Business checks deposited into Personal account Happy
John Burnett Offline
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Individuals set up corporations or LLCs for specific reasons. One of the more important reasons is to protect their personal assets from liability for the business's acts or obligations. That requires that the assets of the business and the individual not be commingled. Cashing checks payable to a corporation or LLC not only confounds the separation requirement but also is a breach of fiduciary responsibility owed to the entity.

If a business owner gets and heeds good legal advice when setting up an LLC or corporation, he or she would not be trying to cash such checks or deposit them to his/her personal account.
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